Why So-So Nvidia Earnings Look So Good

Paul Ausick

Nvidia Corp. (NASDAQ: NVDA) reported fourth-quarter and fiscal year 2019 results after markets closed on Thursday. For the quarter, the chipmaker posted adjusted diluted earnings per share (EPS) of $0.80 and $2.21 billion in revenues. In the same period a year ago, Nvidia reported EPS of $1.72 on revenue of $2.91 billion. Fourth-quarter results also compare to the consensus estimates for EPS of $0.91 and $2.32 billion in revenue.

For the full year, Nvidia posted EPS of $6.63 and revenues of $11.72 billion, compared with fiscal year 2018 EPS of $4.82 and revenues of $9.71 billion. Analysts were looking for EPS of $6.71 and revenues of $11.83 billion.

Nvidia stock has lost about half its value since a peak in 2018, but the loss followed exponential gains in the prior two years. Then, the company’s revenue warning in January sent some shareholders scrambling for the exits. Still, out of 33 analysts ratings, 22 have the stock as a Buy, and only two have Sell (or equivalent) ratings on the shares.

Founder and CEO Jensen Huang said:

This was a turbulent close to what had been a great year. The combination of post-crypto excess channel inventory and recent deteriorating end-market conditions drove a disappointing quarter. Despite this setback, NVIDIA’s fundamental position and the markets we serve are strong. The accelerated computing platform we pioneered is central to some of world’s most important and fastest growing industries – from artificial intelligence to autonomous vehicles to robotics. We fully expect to return to sustained growth.

Despite missing consensus estimates on every metric, the stock was trading up sharply in Thursday’s after-hours session.

Maybe it was the first-quarter 2020 forecast that raised investors’ spirits. The company said it expects approximately $2.2 billion, plus or minus 2%, compared with a consensus estimate of $2.41 billion. The revenue forecast for the full year is basically flat or down slightly compared with 2019 revenues. Non-GAAP gross margins are forecast to improve sequentially from 56% to around 59% while operating expenses remain flat at $755 million.

Nvidia did repurchase $1.58 billion in stock and pay $371 million in dividends during the 2019 fiscal year, and it expects to return a total of $3 billion by the end of the new fiscal year, including $700 million in fourth quarter stock buybacks.

The company’s results don’t appear to justify the steep jump the share price is taking, but maybe investors were expecting even worse numbers. While the Thomson Reuters EPS estimate for the quarter was $0.91, FactSet had an estimate of $0.62. Which only goes to show that if you look hard enough, you can find what you’re looking for.

The stock closed at $154.53 on Thursday, but shares more than 8% higher in the after-hours session, trading at $167.17. The stock’s 52-week trading range is $124.46 to $292.76, and the 12-month consensus price target was $187.72 before results were announced.