NVIDIA Corp. NVDA posted fourth-quarter fiscal 2017 adjusted earnings (including stock-based compensation but excluding other one-time items) on a proportionate tax basis of 99 cents per share for the quarter, up on a year-over-year basis. The Zacks Consensus Estimate was pegged at 83 cents.
Revenues
Revenues not only increased 55.1% year over year to $2.173 billion but also surpassed the Zacks Consensus Estimate of $2.080 billion. The year-over-year increase was primarily attributable to better-than-expected growth across all the platforms, that is, GPUs gaming platform, Professional Visualization, datacenter and Tegra automotive platforms.
Revenues from the GPU business increased 57% year over year to $1.85 billion, driven by strength in GeForce GPUs Gaming revenues and datacenter. Revenues from Gaming GPU increased 66% on a year-over-year basis. Revenues from datacenter (including Tesla and Grid) came in at $296 million, which more than tripled on a year-over-year basis.
Tegra processor revenues increased 64% from the year-ago quarter and came in at $257 million, primarily due to better-than-expected growth in Tegra development services and automotive. Automotive revenues for the quarter came in at $128 million, up 38% year over year.
Moving to Professional Visualization, revenues from Quadro increased 11% year over year and came in at $225 million. The increase was mainly due to strong demand in real-time rendering tools and mobile workstations.
Margins
NVIDIA’s adjusted gross margin (including stock-based compensation but excluding other one-time items) expanded 314 basis points (bps) from the year-ago quarter to 59.9%. In dollar terms, gross profit came in at $1.303 billion, up 63.7% from the year-ago quarter, primarily on the back of strength in GeForce GPU gaming platform and a higher revenue base.
Adjusted operating expenses increased 12.9% from the year-ago quarter to $566 million, as the company continued to invest in sales, general and administrative activities and higher research and development expenses. As a percentage of revenues, operating expenses however decreased 971 bps from the year-ago quarter to 26.1%.
NVIDIA’s adjusted operating margin was up from 21.1% to 33.9% during the quarter, reflecting growth in its GeForce GTX GPU business and lower operating expenses as a percentage of revenues. In dollar terms, adjusted operating income increased from $295 million to $737 million.
Balance Sheet & Cash Flow
NVIDIA exited the quarter with cash, cash equivalents and marketable securities of $6.798 billion compared with $6.67 billion in the previous quarter. NVIDIA’s total debt (including current portion) was $2.779 billion. Free cash flow in the quarter came in at $669 million, while cash flow from operations was $721 million.
During fiscal 2017, the company repurchased shares worth $739 million and paid a cash dividend of $261 million. NVIDIA also announced a quarterly dividend of 14 cents per share, which is payable on Mar 17, 2017.
Guidance
For the first quarter of fiscal 2018, NVIDIA expects revenues of approximately $1.90 billion (+/-2%). The Zacks Consensus Estimate is pegged at $1.868 billion.
Non-GAAP gross margin is expected to be 59.7% (+/-50 bps). Non-GAAP operating expenses are expected to be approximately $520 million. Capital expenditures are expected to be roughly in a range of $50 million to $60 million. Non-GAAP tax rate is expected to be 17% (+/-1%).
For fiscal 2018, the company expects to return $1.25 billion to its shareholders in the form of cash dividends and share repurchases.
Our Take
NVIDIA posted impressive fourth-quarter fiscal 2017 results and provided an encouraging first-quarter revenue guidance. Also, the company registered year-over-year growth on both counts, primarily due to growth across all its four platforms. Also, better-than-expected demand for its gaming chips used in personal computers helped the company to post encouraging results.
Furthermore, we believe that NVIDIA’s innovative product pipeline and strength in gaming and high-end notebook GPUs keep it well positioned. We also believe that the higher adoption of NVIDIA’s Tegra processors could act as a catalyst, going forward.
Nonetheless, competition from the likes of Intel INTC and QUALCOMM Inc. QCOM remains a near-term headwind.
The stock has been clocking solid returns over the past one year and has gained 347.35%, outperforming the Zacks categorized Semiconductor-General industry’s return of just about 59.87%.
Currently, NVIDIA has a Zacks Rank #2 (Buy). A better-ranked stock in the technology sector is Seagate Technology plc STX, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here
Seagate has a long-term EPS growth rate of 8.17%.
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