NVIDIA reported (https://tinyurl.com/y4ms3avm) after the market closed on 18 November 2020 it earned $2.12 per diluted share in the quarter that ended on 25 October 2020, up 46% percent from earnings of $1.45 in the equivalent 13 weeks of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP), which are described at https://tinyurl.com/yy2nwv8n.
NVIDIA develops high-speed integrated circuits and cards for demanding data-processing applications, such as gaming, data centers, visualization, and even cryptocurrency mining. NVIDIA acquired Mellanox Technologies, a maker of computer networking products, for $6.9 billion in April 2020. It announced in October that it plans to acquire semiconductor-designer Arm Limited for $40 billion.
Non-GAAP earnings rose 63% to $2.91 per share from $1.78 one year earlier, a percent change much better than seen with the GAAP figures. Non-GAAP earnings, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits. However, caution is warranted when analyzing these figures because management has considerable leeway in choosing which GAAP-required items to exclude.
The exclusions responsible for the $0.79 per share difference in the latest quarter between GAAP earnings and Non-GAAP earnings were: Stock-based compensation [$0.50 per share], Acquisition-related costs [$0.25 per share], and Legal settlement [$0.03 per share].
Non-GAAP earnings of $2.91 per share in the latest quarter significantly beat the $2.58 average ("consensus") of estimates made by Wall Street analysts. See https://tinyurl.com/y5flwujv for NVIDIA's earnings record and forecasts.
Although NVIDIA's earnings were better than expected, stock market traders still weren't satisfied. The price of the company's shares fell 0.9% during after-hours trading following the report.
Looking deeper into the GAAP results, "top-line" revenue in the October 2020 quarter totaled $4.7 billion, 57% more than last year's $3.0 billion. The Gaming business was responsible for 48% of overall revenue, and this unit's revenue grew by 36.9% compared to the year-earlier result. The Data Center business contributed 40% of revenue, and this unit's revenue grew by 161.7%. The Professional Visualization unit supplied 5% of revenue, and the amount fell by 27.2%.
The gross margin weakened from 63.6% of revenue to 62.6%, a sign that NVIDIA sold its output and services at less profitable prices relative to production costs. Sales, general, and administrative expenses increased from 9.2% to 10.9% of quarterly revenue, which shows the company spent more per dollar of sales on other operational costs, such as marketing. The effective income tax rate fell by 5.4% to 0.9%, which had a positive effect on net income.
NVIDIA's operating activities generated $1.3 billion in cash during the last quarter, down 22.0% from $1.6 billion in the year-earlier period. The cash flow delta was, therefore, much worse than the change in earnings. Notable uses for cash included $99 million to pay dividends to shareholders, $1.4 billion for corporate acquisitions, and $473 million to acquire property, plant and capital equipment.
Free cash flow over the last 12 months totaled $4.2 billion, or $6.71 per share using the latest share count. At the current market price per share of $537.15, this translates into a weak Free Cash Flow Yield of 1.2%.
The accompanying charts illustrate several trends in NVIDIA's financial results, taken from data in regulatory filings. The text and the charts are intended to provide some limited historical context for readers interested in the company’s finances. No investment advice is provided, and no investment offer of any kind is made or solicited. The accuracy of the information presented is not guaranteed, and readers are encouraged to independently verify all data.
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