Earnings season is drawing to a close, as about 97% of S&P 500 companies have released their latest results. This week, we heard from NVIDIA Corporation (NVDA), and it did not disappoint.
NVIDIA reported earnings for its first quarter in fiscal year 2023 on Wednesday, May 25. The company achieved record revenue thanks to record data center and gaming revenue. First-quarter revenue jumped 46% year-over-year to $8.29 billion, which topped estimates for $8.12 billion. Data center revenue accounted for $3.75 billion, or an 83% year-over-year increase, while gaming revenue accounted for $3.62 billion, or a 31% year-over-year increase. Laptops and chips for game consoles, like the Nintendo Switch, propelled gaming growth.
The company also reported first-quarter earnings of $3.44 billion, or $1.36 per share, up from $2.56 billion, or $0.91 per share, in the first quarter of fiscal year 2022. That translates to 49% year-over-year earnings growth. The analyst community expected earnings of $1.29 per share, so NVIDIA posted a 5.4% earnings surprise.
Looking forward to the second quarter in fiscal year 2023, NVIDIA took into account the lockdowns in China and the ongoing conflict in Ukraine, and it now expects revenue of about $8.1 billion. That’s lower than analysts’ current projections for revenue of $8.45 billion in the second quarter, so NVDA shares slipped 9% in after-hours trading on Wednesday.
Personally, I believe NVIDIA is being overly cautious given that China is easing up on its COVID-19 restrictions and Russia only accounts for about 2% of NVIDIA’s business. So, neither China’s nor Russia’s near-term issues should turn into long-term problems for NVIDIA. I think Wall Street realized this, too, which is why the stock snapped back and ended Thursday up 5%.
Following NVIDIA’s surge this week, I anticipate that the increase in money flow will persist, making it a strong buy right now.
Case in point: Snap Inc. (SNAP).
Snap released its first-quarter earnings back in April. The company reported an earnings loss of $0.02 per share on revenue of $1.07 billion. Analysts were calling for earnings of $0.01 per share on revenue of $1.1 billion, so the company missed earnings estimates by a whopping 300% and revenue estimates by 2.7%.
SNAP shares actually rallied slightly despite the weaker-than-expected earnings results, but it was company management’s comments on Snap’s future this Monday that really set the shares spiraling nearly 40%.
On Monday, CEO Evan Spiegel issued a warning that the company’s original estimates for revenue and earnings does not look so accurate anymore.
“Today we filed an 8-k, sharing that the macro environment has deteriorated further and faster than we anticipated when we issued our quarterly guidance last month” Spiegel wrote in a note to employees. “As a result, while our revenue continues to grow year-over-year, it is growing more slowly than we expected at this time.”
Snap will also slow down its hiring. It expects to hire 500 new employees before the end of the year. For reference, 2,000 new hires were made over the last 12 months.
After its earnings report in April, Snap anticipated year-over-year revenue growth of 20% to 25%. Now the company says it will miss targets for both revenue and earnings and has not issued any new guidance. This is the first time Snap has issued a revenue warning.
Analysts now expect earnings of $0.00 per share on revenue of $1.17 billion for the next quarter, with 13 analysts having revised their estimates lower in the last 30 days.
SNAP stock fell 40% after the announcement Monday, and sent other social media stocks like Facebook, Twitter Inc. (TWTR) and Pinterest Inc. (PINS) lower by 7%, 4% and 43%, respectively.
Folks using my Portfolio Grader would have been able to foresee the disappointing news from SNAP.
As you can see in the Report Card above, SNAP earns a D-rating for its Quantitative Grade (its money flow) and a D-rating overall. So, it was a sell even before SNAP’s stunning selloff.
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