NVIDIA’s Revenue Down Year-over-Year But Analysts’ Beat Moves Stock Higher

eResearch | On August 15, 2019, NVIDIA Corporation (NASDAQ: NVDA; LSE: 0R1I; DB: NVD) reported earnings for FQ2/2020 in which revenue declined year-over-year but beat analysts’ estimates. The Company’s stock price has declined by more than 45% from its high of US$292.76 per share in October 2018 due to combined factors including the ongoing global trade-war, a decline in cryptocurrency mining activity, and cloud tech giants reducing spending on NVIDIA’s processors for their data centers.

NVIDIA is best known for inventing the Graphics Processing Unit (GPU), used for advanced capabilities in computational performance. NVIDIA’s main divisions in order of revenue are:

Gaming: US$1.3 billion
Data Center: US$655 million
Professional Visualization (high-speed graphic solutions for computers): US$291 million
Automotive Business: US$209 million
OEM (for 3^rd party manufacturers)/Other: US$111

Although one of the smaller segments, the automotive division is receiving a lot of attention due to the advent of self-driving cars and increased computing power and visualization technology required to keep the cars on the road, and passengers and pedestrians safe. Revenue was up 30% year-over-year to US$209 million from US$161 million.

With respect to guidance, NVIDIA provided an outlook for fiscal third quarter with revenue expected to be US$2.90 billion, plus or minus 2%, down from US$3.18 billion in FQ3/2019.

NVIDIA Earnings FQ2/2020 highlights:

Revenue decreased by 17.4% to US$2.5 billion from US$3.1 billion year-over-year and beat analyst expectation of an 18% decrease.
Gross revenue margins decreased to 59% compared with 64% year-over-year.
Operating income decreased by 38% to US$802 million year-over-year due to US$749 million in expenses attributed to infrastructure costs and an increase in employee compensation.
Main GPU business fell 21% to US$2.1 billion year-over-year due to deterioration in gaming and data center revenue.
Gaming revenue, the largest revenue segment decreased by 27% to US$1.3 billion year-over-year.
Data center revenue dropped by 14% to US$655 million year-over-year.
Revenue from Asian Pacific countries is now the largest geographic revenue segment accounting for US$756 million in revenue compared with US$676 year-over-year.
Revenue from the U.S. decreased by 54% to US$188 million from US$413 million year-over-year, the largest percentage drop in any region.
Contract licenses and development arrangements not yet recognized as revenue were US$418 million, of which 48% is expected to be recognized as revenue in the next 12 months.
One customer represents approximately 11% of total revenue, mainly attributed to GPU business.
One customer account for 20% of accounts receivables.
Cash and cash equivalents at US$7.1 billion

As NVIDIA’s organic revenue streams decline, the Company is now focusing on inorganic growth opportunities through mergers and acquisitions.

On March 10, 2019, NVIDIA announced a merger with Mellanox Technologies Ltd., a leading competitor in the computer processor industry, for a total enterprise value of US$6.9 billion. The merger would help NVIDIA scale operations through optimizing data-center workloads and connecting the power of over 250 of the world’s TOP500 supercomputers. The Company’s shareholders approved the merger in June 2019, and regulatory approvals from the U.S. and Mexico were received with awaiting approvals from Europe and China.

Other strategies that NVIDIA is implementing to find new revenue streams is through investments, such as a US$20 million investment in the Chinese start-up, TuSimple, an autonomous driving solutions company. On August 15, 2019, UPS, a delivery company that has been testing the start-up’s autonomous trucks in Arizona for the past couple months, announced that it would be taking a minority equity stake in TuSimple.

NVIDIA Corporation (NASDAQ: NVDA; LSE: 0R1I; DB: NVD)

Headquartered in California, U.S., NVIDIA is a technology hardware company that is best known for inventing the Graphics Processing Unit, used for advanced capabilities in computational performance.
NVIDIA main revenue streams are from GPUs and Tegra Processors which were used to design proprietary platforms to support companies in gaming, professional visualization, data storage, and automotive.
NVIDIA currently trades at US$157.88 with a market capitalization of US$96.1 billion.