Who Are NetApp's Rivals? NetApp's list of rivals reads like a "who's who" of mega-cap tech stocks. That's no accident. As prices for traditional hardware products continue to drop, many "old tech" companies are aggressively converting to cloud storage to maintain profit margins. They have seen the impact that hybrid cloud sales have had on NetApp stock over the past 10 years and want to do the same. Microsoft (NSDQ: MSFT) In February 2014, Satya Nadella was named the third CEO of Microsoft (after Bill Gates and Steve Ballmer). Since then, Microsoft has been in constant reinvention mode with a primary emphasis on cloud storage. Nadella's risky (at the time) strategy has paid off in spades. Over the past five years, MSFT tripled in value. During the last quarter of 2018, sales of its "Azure" cloud storage products grew 76%. The company boasts an impressive roster of cloud storage clients including retail giants Walmart (NYSE: WMT), Kroger (NYSE: KR), and Walgreens Boots Alliance (NSDQ: WBA). Amazon (NSDQ: AMZN) Despite its reputation as a "category killer," when it comes to cloud storage Amazon is helping to build the industry through its Amazon Web Services (AWS) division. In fact, cloud revenue now accounts for more than half of Amazon's operating income. During the last quarter of 2018, AWS cloud revenue was $7.4 billion compared to $5.1 billion during the previous year. That makes Amazon the dominant player in the public cloud space with a market share estimated at nearly 42%. International Business Machines (NYSE: IBM) Compared to Microsoft and Amazon, IBM is coming late to the cloud computing game. However, it made up for lost time by purchasing Red Hat last year in a deal valued at $34 billion. Red Hat is the developer of Linux, an open-source software product that facilitates cloud computing. That transaction will immediately vault IBM to the top of the list of hybrid cloud providers in 2019. To what extent that market share translates into profitability remains to be seen, but it will have an immediate impact on pricing and profit margins for the entire industry. Will NetApp Go Up in 2019 (Should you Buy?) No doubt about it, demand for hybrid cloud storage will continue to grow as more users optimize the cost of managing their data. According to a recent report, "The global hybrid cloud market is expected to grow from USD $44.60 billion in 2018 to USD 97.64 by 2023, at a Compound Annual Growth Rate (CAGR) of 17% during the forecast period." If NetApp can retain its current market share, it stands to reason that its cloud storage revenue should also grow at a 17% rate over the next several years. Cloud storage is a highly scalable business, so profitability should increase at an even greater rate. Will NetApp Go Down in 2019 (Should you Sell?) Hybrid cloud storage has become a crowded space. Despite NetApp's early entry into the hybrid cloud market, its days as a market leader may be numbered. The three competitors named above have a combined market cap of $1.7 trillion compared to NetApp's $16 billion value. All three of them have identified hybrid cloud storage as a top priority and have the resources to compete with NetApp. For that reason, the Wall Street analysts following the company are beginning to lose faith in NetApp. In January, Morgan Stanley downgraded NTAP and reduced its 12-month price target from $72 to $58. The stock was trading at $62 the day that report was released, suggesting the stock will lose value over the remainder of the year. Overall NetApp Forecast and Prediction for 2019 Our prediction for NetApp stock in 2019 is that it will struggle to retain market share against its larger rivals. If it has to cut prices to compete, its already narrow profit margin of less than 5% could get squeezed down to almost nothing. Don't let NetApp's recent share price swoon fool you into believing it is now a value play. Even though NTAP stock is down considerably from its 2018 high price near $88, it is still more than triple its 2016 low below $21. It's a solid company in a growth market, but we suggest waiting until next year to scoop up shares of NTAP. That said, there is one argument for buying NetApp stock now. Given its relatively small size, NetApp could end up being acquired by a larger competitor. Now that IBM has taken RedHat off the market, NetApp is one of the few logical takeover targets left in an industry that is rapidly consolidating. We don't think that is likely to happen this year, but if NetApp stock falls much further, it may become an attractive acquisition candidate. | 
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