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NVIDIA Corp. Earnings: A Harsh Cryptocurrency Hangover

By Anders Bylund – Nov 16, 2018 at 2:41PM

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The graphics processor specialist reported mixed third-quarter results and set the bar very low for the next reporting period, all due to a lack of market interest in cryptocurrency mining.

Graphics processor designer NVIDIA (NVDA -4.05%) reported earnings Thursday night, covering the third quarter of fiscal year 2019. The company beat its own earnings guidance despite falling short of management's revenue projections. Here's a closer look at NVIDIA's third-quarter results.

NVIDIA's third-quarter results: The raw numbers

Metric

Q3 2019

Q3 2018

Year-Over-Year Change

Revenue

$3.18 billion

$2.64 billion

21%

Net income

$1.12 billion

$838 million

47%

GAAP earnings per share (diluted)

$1.97

$1.33

48%

Data source: NVIDIA.

What happened with NVIDIA this quarter?

  • Management's guidance for this quarter pointed to earnings near $1.73 per share on sales in the neighborhood of $3.25 billion. NVIDIA landed at the bottom end of the revenue guidance range while exceeding every expectation on the bottom line.
  • Data center orders rose 58% year over year to $792 million. Customers in this space have been quick to adopt NVIDIA's latest Turing T4 Cloud GPU and Tesla V100 products.
  • Automotive computing sales increased 19% to $172 million. The company recently started production and shipped out development kits in support of a new chip called Xavier, billed as the first single-chip solution for autopilot platforms.
  • In the gaming segment, revenues rose 13% to $1.76 billion. The distribution channels in this sector are clogged by unsold mid-range GPUs, shipped out to support a cryptocurrency mining craze that ran out of steam in a hurry. Due to the cluttered warehouses further down the shipping pipeline, NVIDIA's own product inventories rose 30% over the last three months to an uncomfortable $1.42 billion. By comparison, inventory totals increased by less than 1% between the second and third quarters of last year.
  • NVIDIA also boosted its share buyback authorization from $1 billion to $8 billion and lifted its dividend payouts 7% higher.
A 3-D NVIDIA logo found in the lobby of the company's headquarters in Santa Clara, Calif.

Image source: NVIDIA.

What management had to say

On the earnings call, CEO Jensen Huang explained how severe the hangover from the earlier cryptocurrency boom turned out to be.

We were surprised, obviously. We're surprised by it as anybody else. The crypto hangover lasted longer than we expected. Prices started to drift down and we expected to come down much more quickly than it did. When it went down, we expected demand to come up much more quickly than it did. And so I think the channel wanted to protect its price. People were uncertain about crypto.

And demand was uncertain about when the price would be stabilized. And so all of that uncertainty I think froze the market a little longer than we expected.

And the new Turing graphics platform is pulling its weight just fine in traditional markets such as gaming cards and data center functions, Huang said.

"Turing is the highest performance GPU at every single price point. It played no role in this transition. It's all about crypto hangover."

Looking ahead

NVIDIA hopes to have worked through the industry's excess inventories by the end of the fourth quarter, setting the stage for renewed growth in calendar year 2019 and beyond. Next-generation games such as Electronic ArtsBattlefield 5 support the Turing chips' new ray tracing functions out of the box, perhaps paving the way toward another wave of system upgrades in the gaming enthusiast market.

But the slowdown over the holidays is very real. Fourth-quarter revenues are expected to stop near $2.7 billion, roughly 7% below the year-ago period's result. Working through the provided set of expected operating costs and tax rates, the target for GAAP earnings lands at approximately $1.16 per share. That would be 35% below the $1.78 per share that was reported in the fourth quarter of fiscal year 2018.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.

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