Is NetApp (Nasdaq: NTAP) a scrappy underdog to storage giant EMC (NYSE: EMC) -- or just another also-ran?
Heading into this week's third-quarter report, I theorized that NetApp would measure up to the success that EMC reported last month. The pudding is here, and it's full of proof: NetApp matched analyst expectations almost to a fault, with non-GAAP earnings of $0.58 on sales of $1.56 billion. Looking ahead, management sees the fourth quarter once again right in line with Street targets.
NetApp shares jumped as much as 8% on the news and have now delivered a market-beating 17% return in three months -- right in line with EMC's stock. When NetApp CFO Steve Gomo says that he doesn't think his company will do "any better or any worse than the other big players in the market," he's right on target.
I actually think Gomo is being modest. Consider that NetApp grew sales by 21% year over year while EMC's sales rose only 14% -- and much of EMC's growth came from its majority stake in virtual computing pioneer VMware (NYSE: VMW) while NetApp just hunkered down and sold storage systems.
I think "scrappy underdog" is a very apt description of NetApp in this race. The company is growing faster than all of its major rivals, which works out to stealing market share not only from EMC but also from IBM and Hewlett-Packard. Do that on a consistent, sustainable basis, and you deserve some respect. That's exactly what NetApp is doing. Just to rub in his market power, CEO Tom Georgens noted that EMC likes to grow by acquiring smaller industry players while NetApp's growth is almost totally organic.
I like the storage market in general because pretty much every stock in it looks undervalued today. NetApp happens to be one of my favorites thanks to its proven ability to grab market share in a hard-as-nails competitive environment. My bullish CAPScall on NetApp is in the red since I started it a year ago (on the dot -- where's the anniversary cake, people?) but I expect it to come back and bolster my All-Star CAPS status in the long term. There's simply no way this two-pronged bet on the storage-hungry Big Data and cloud-computing revolutions can disappoint a patient investor.
