Can NetApp's Free Cash Flow Momentum Sustain Shareholder Returns?

NetApp NTAP delivered strong fiscal third quarter results, with profitability and cash flows reinforcing its ability to sustain shareholder returns. While revenue growth was modest, disciplined execution and margin strength translated into healthy free cash flow, supporting buybacks and dividends.

In the last reported quarter, net cash from operations was $317 million, while free cash flow was $271 million. The company reported revenues of $1.71 billion, which increased 4% year over year. Non-GAAP operating income increased 8.3% year over year to $533 million. Non-GAAP operating margin was 31.1%, up from 30%. Non-GAAP earnings of $2.12 per share beat the Zacks Consensus Estimate by 2.4%. The figure increased 11% year over year.

NetApp exited the quarter ended Jan. 23, 2026, with $3 billion in cash, cash equivalents and investments, and long-term debt was $2.486 billion.

Against this backdrop, NTAP returned $303 million to its shareholders as dividend payouts ($103 million) and share repurchases ($200 million) in the fiscal third quarter. The company also announced a dividend of 52 cents per share payable on April 22, 2026, to its shareholders of record as of April 3.

Visibility into future cash flows also improved. Deferred revenues rose 12% year over year to $4.63 billion, and remaining performance obligations (“RPO”) grew 14% to $5.11 billion. Unbilled RPO, a key indicator of future Keystone revenues, increased 38% year over year. Keystone revenues surged 65% year over year in the fiscal third quarter.

NTAP is managing capital returns while focusing on emerging AI, cloud and All-Flash growth engines. NetApp remains focused on capturing a bigger share of the AI cycle and is investing accordingly. Customer adoption is increasing, with roughly 300 AI infrastructure and data-modernization deals closed in the fiscal third quarter.

Driven by steady demand for its solutions, NetApp expects fiscal fourth-quarter revenues to be $1.87 billion (+/-$75 million), which represents 8% year over year growth at the midpoint. Revenue growth, coupled with steady execution and free cash flow momentum, appears to be sufficient to sustain shareholder returns. However cautious macro environment and memory price inflation continue to be concerns.

Let’s Look at Shareholder Returns for Competitors

Western Digital WDC recently expanded its buyback authorization by an additional $4 billion, underpinned by strong business momentum and cash generation. The company already has an active capital return program and $484 million remaining in its existing buyback plan.

WDC is firing on all cylinders, driven by the booming AI-driven data storage cycle. For the fiscal second quarter, Western Digital generated $3.02 billion in revenues with free cash flow reaching $653 million in the quarter. This allowed management to return more than 100% of its free cash flow to shareholders through a combination of share repurchases and dividends. WDC repurchased approximately 3.8 million shares for $615 million and paid $48 million in dividends. Since launching the capital return program in the fourth quarter of fiscal 2025, the company has returned a total of $1.4 billion to its shareholders through dividends and buybacks.

Seagate Technology Holdings plc STX resumed share repurchases after a hiatus, marking a notable shift in capital allocation.

For the second quarter of fiscal 2026, Seagate reported $723 million in cash flow from operations and $607 million in free cash flow. In the December quarter,Seagate returned $154 million to its shareholders via dividends and retired about $500 million of exchangeable senior notes due 2028, reducing potential dilution and preserving cash flexibility for future share repurchases. Seagate expects free cash flow to increase further in the March quarter, driven by strong demand, operational efficiency and disciplined capital spending, supporting sustainable long-term cash generation.

Everpure PSTG, an all-flash storage systems provider, is emphasizing shareholder returns, supported by improving operating performance and stronger cash flow visibility. In December 2025, the company announced its “largest-ever share repurchase authorization” of $400 million, suggesting growing confidence in business momentum and balance sheet strength.

The company recently reported fourth-quarter fiscal 2026 results, wherein revenues expanded 20% year over year to $1.1 billion. Free cash flow was $201.5 million compared with $152.4 million in the year-ago quarter. The company returned $127 million to shareholders by buying back 1.7 million shares in the fiscal fourth quarter. In fiscal 2026, the company returned $343 million to its shareholders by repurchasing 5.6 million shares. Everpure has $329 million left from its existing $400 million share repurchase plan. For fiscal 2026, 56% of free cash flow was used for buybacks.

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This article originally published on Zacks Investment Research (zacks.com).

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