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NVIDIA Corporation Delivers Blowout Earnings Results

By Ashraf Eassa – Nov 10, 2016 at 7:34PM

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Strength in all of its key growth businesses drives a big earnings beat for this graphics specialist.

On Nov. 10, graphics specialist NVIDIA (NVDA -0.46%) reported financial results for the third quarter of its fiscal year 2017. NVIDIA says it generated $2 billion in revenue, up 54% year over year, crushing the midpoint of the $1.68 billion revenue guidance it gave last quarter and the $1.69 billion analyst consensus.

Image source: NVIDIA. 

NVIDIA also blew away its margin forecast of 57.8% on a GAAP basis, turning in GAAP gross margin of 59% of revenue. Non-GAAP diluted earnings per share were $0.94 for the quarter, growing 89% year over year and handily cruising past analyst consensus of $0.57.

For the coming quarter, things look even better. NVIDIA is calling for revenue to grow to $2.1 billion, up $100 million sequentially, with gross profit margin expected to be 59% on a GAAP basis. Analyst consensus had called for NVIDIA's revenues to stay flat quarter over quarter off a lower base, so this is a significant beat as well.

Let's take a closer look at what drove these results.

Substantial growth in three major businesses

NVIDIA's gaming business surged to $1.24 billion, growing 59% from the prior quarter and a whopping 63% from the year-ago quarter. Considering this is NVIDIA's largest business by a significant margin, it's an impressive showing.

The company's data-center efforts, which was a source of significant upside last quarter, saw revenue growth of 59% from the prior quarter and 193% growth (that's not a typo) from the year-ago quarter. Total revenue for this business was $240 million.

And, finally, the company's automotive business enjoyed significant growth as well, climbing 7% sequentially but a full 61% year over year.

Of NVIDIA's four major growth businesses, three were up more than 60% year over year during the quarter.

NVIDIA's professional visualization, the fourth of the company's core businesses, declined 3% sequentially but grew 9% year over year. This is the least exciting of NVIDIA's major business, at least from a growth perspective, but it's encouraging to see it continue growing as it did in the prior two quarters of the current fiscal year. 

OEM and IP business down a smidgen

Although NVIDIA's largest and most important businesses enjoyed robust growth, the company's OEM and IP business grew 40% sequentially but contracted 4% year over year, falling from $193 million to $186 million.

NVIDIA management has indicated in the past that this business should generally track the overall personal-computer market. If we exclude the $66 million in royalty payments NVIDIA receives in this business, then the year-over-year decline in this business was approximately 5.5%. Gartner says PC shipments declined by 5.7% year over year during the third quarter, so this business truly is tracking the personal-computer market.

Overall, a great quarter

It's hard to find anything not to like in these results; the businesses that are important to NVIDIA's future are growing extremely quickly. They're also very profitable, with the company's overall gross profit margin percentage now nearing 60%. Moreover, based on the company's guidance for its fourth fiscal quarter, the momentum doesn't appear to be slowing.

The area in which NVIDIA's results were weak -- OEM and IP -- is one that's expected to continue to be weak. Moreover, this business isn't expected to play a significant role in the company's long-term future, as the $66 million per quarter in royalty payments it currently receives will soon dry up, leaving only low-margin graphics processors sold into general-purpose personal computers.

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Nvidia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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