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NVIDIA (NVDA) Q3 Earnings & Revenues Top, View Encouraging

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Zacks Equity Research
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NVIDIA Corporation NVDA delivered third-quarter fiscal 2021 non-GAAP earnings of $2.91 per share, beating the Zacks Consensus Estimate by 13.2%. The reported figure also surged 63% year over year and 33% sequentially.

Revenues of $4.73 billion beat the consensus mark by 7% and jumped 57% year over year as well. The top line also climbed 22% sequentially.

The COVID-19 pandemic negatively impacted the company’s professional visualization and automotive businesses during the reported quarter. Nevertheless, strong data-center and gaming performances offset these negatives to a large extent.

NVIDIA Corporation Price, Consensus and EPS Surprise

NVIDIA Corporation Price, Consensus and EPS Surprise
NVIDIA Corporation Price, Consensus and EPS Surprise

NVIDIA Corporation price-consensus-eps-surprise-chart | NVIDIA Corporation Quote

Segment Details

Beginning first-quarter fiscal 2021, NVIDIA started reporting revenues under two segments — Graphics and Compute & Networking.

Graphics include GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro GPUs for enterprise design; GRID software for cloud-based visual and virtual computing; and automotive platforms for infotainment systems.

Graphics accounted for 59% of revenues. The segment top-line figure grew 25% year over year and 34% sequentially.

Compute & Networking represented 41% of third-quarter fiscal 2021 revenues. The segment comprises Data-Center platforms and systems for AI, HPC, and accelerated computing; DRIVE for autonomous vehicles; and Jetson for robotics and other embedded platforms.

Compute & Networking revenues soared 146% from the year-ago quarter and 9% sequentially.

Market Platform Top-Line Details

Based on the market platform, Gaming revenues (48% of revenues) were up 37% year over year as well as sequentially to $2.27 billion on higher sales across the company’s notebook and desktop gaming GPUs and game console SOCs.

Revenues from Data Center (40% of revenues) soared 162% year over year and 8% sequentially to $1.9 billion. This upswing was mainly driven by revenue contribution from the Mellanox acquisition and ramp up of the company’s Ampere architecture products. Mellanox contributed a third of data-center revenues and 13% to the company’s overall revenues.

Professional Visualization revenues (5% of revenues) slid 27% year over year to $236 million mainly due to lower demand of desktop workstations. However, the segment’s revenues marked a sequential improvement of 16% primarily due to the rebound in mobile workstations amid the remote-working trend.

Automotive revenues (3% of revenues) in the reported quarter totaled $125 million, down 23% on a year-over-year basis on decline in legacy infotainment module revenues and reduced autonomous driving development agreements. Nonetheless, the division’s sales increased 13% sequentially on higher sales of AI (artificial intelligence) cockpit solutions.

OEM and Other revenues were up 36% year over year and 33% sequentially to $194 million (4% of revenues). This year-over-year and sequential growth primarily resulted from higher demand for entry-level laptop GPUs.

Operating Details

NVIDIA’s non-GAAP gross margin expanded 140 basis points (bps) from the year-ago quarter to 65.5%, reflecting product mix shift to higher data-center and lower automotive businesses, partially offset by lower margins in gaming. Sequentially, non-GAAP gross margin contracted 50 bps chiefly due to product mix shift to lower margin gaming business from higher margin data-center business.

Non-GAAP operating expenses flared up 42% year over year and 6% sequentially to $1.04 billion on increased headcount and the Mellanox acquisition-related costs.

Non-GAAP operating income soared 72% year over year and 31% sequentially to $1.99 billion.

Balance Sheet and Cash Flow

As of Oct 25, 2020, NVIDIA’s cash, cash equivalents and marketable securities were $10.14 billion, down from $10.98 billion as of Jul 26.

As of Jul 26, total long-term debt (including current maturities) was $6.96 billion, flat with the fiscal second quarter.

The company generated $1.28 billion in operating cash flow, down from the year-ago quarter’s $1.64 billion and the previous quarter’s $1.57 billion. Free cash flow was $806 million, down from the prior-year period’s $1.54 billion as well as the last quarter’s $1.35 billion.

In the first nine months of fiscal 2021, the company generated operating and free cash flows of $3.76 billion and $2.91 billion, respectively.

During the fiscal third quarter, NVIDIA paid dividends of $99 million. The company is committed to paying its quarterly dividend. During the first nine months of fiscal 2021, the company returned $296 million in dividend to shareholders.

Guidance

The company noted that the fiscal fourth quarter would be of 14 weeks and therefore, would bring incremental revenues as well as operating expenses. NVIDIA projects its Gaming segment revenues to increase sequentially despite typically a seasonally down quarter, mainly aided by the ramp up of new RTX 30 series products.

For the Data-Center division, it forecasts revenues to decline quarter on quarter. NVIDIA further projects sequential revenue growth on the Automotive and Professional Visualization market platforms, though both businesses are still expected to witness year-over-year declines.

Based on the above assumption, the company expects its Compute & Networking revenues to grow in the mid-single-digit range sequentially and offset the negative impact of the  quarter-on-quarter decline in Mellanox revenues to a large extent.

For the fourth quarter of fiscal 2021, NVIDIA anticipates revenues of $4.8 billion (+/-2%).

Non-GAAP gross margin is projected at 65.5% (+/-50 bps). Non-GAAP operating expenses are estimated to be $1.18 billion.

Capital expenditures are expected to be approximately $300-$325 million.

Zacks Rank & Other Stocks to Consider

NVIDIA currently sports a Zacks Rank #1 (Strong Buy).

Other top-ranked stocks in the broader technology sector include Arrow Electronics ARW, Texas Instruments TXN and STMicroelectronics N.V. STM, all carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Arrow, Texas and STMicroelectronics is currently pegged at 8.5%, 9.3%, and 5%, respectively.

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