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Despite Arm Crushing Earnings Expectations, Stock Falls as Forecast Lacks the Wow Factor

May 9, 2024
minute read

Following a significant surge in recent times, Arm Holdings PLC shares appeared poised to relinquish a portion of their gains subsequent to Wednesday afternoon's earnings announcement.

In premarket trading on Thursday, the chip-design company witnessed an 8% decline as investors digested the latest quarterly results, which, while surpassing expectations, failed to inspire the same level of optimism for the full year.

Arm reported a fiscal fourth-quarter net income of $224 million, or 21 cents per share, marking a substantial improvement from essentially breaking even on this metric a year earlier. On an adjusted basis, the company earned 36 cents per share, compared to a mere 2 cents per share in the preceding year, exceeding analysts' projections of 30 cents per share.

Revenue also experienced a notable uptick, reaching $928 million from $633 million, surpassing the FactSet consensus of $866 million.

A highlight of the earnings report was the record-breaking royalty revenue, amounting to $514 million, which represented a 37% increase from the previous year and exceeded analysts' forecasts of $495 million. Additionally, Arm generated $414 million in license revenue, marking a 60% surge from the prior year, though slightly below analysts' expectations of $495 million.

Looking ahead to the fiscal first quarter, Arm anticipates revenue in the range of $875 million to $925 million, accompanied by adjusted earnings per share ranging from 32 cents to 36 cents. These figures slightly surpass analysts' projections of $866 million in revenue and 31 cents in adjusted earnings per share.

However, the company's outlook for the full fiscal year was met with less enthusiasm as it fell within consensus expectations. Arm's full-year forecast anticipates revenue between $3.8 billion and $4.1 billion, alongside adjusted earnings per share ranging from $1.45 to $1.65. Analysts had forecasted revenue of $4.0 billion and adjusted earnings per share of $1.54, respectively.

Despite the slight dampening of optimism due to the tempered full-year outlook, Arm shares have still posted an impressive 41% gain year-to-date, reflecting the continued confidence in the company's prospects.

Adan Harris
Managing Editor
Eric Ng
John Liu
Editorial Board
Bryan Curtis
Adan Harris
Managing Editor
Cathy Hills
Associate Editor

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