Investors Need to Take a Closer Look at These NVIDIA Figures

Graphics chip leader NVIDIA (NVDA -10.01%) admitted in its fourth-quarter report that its latest generation of graphics cards, the RTX 20 series, had come up short of expectations. CFO Colette Kress said during the earnings call that "sales of certain high-end GPUs using our new Turing architecture, including the GeForce RTX 2080 and 2070, were lower than we expected for the launch of a new architecture."

Weak sales of NVIDIA's expensive new graphics cards contributed to a 24% plunge in revenue and a 53% decline in earnings compared to the prior-year period. What's more, NVIDIA's guidance calls for another steep year-over-year sales decline in the first quarter. Clearly, the RTX 20 series is not having the same success as the GTX 10 series that came before it.

Or is it? During NVIDIA's investor day event last week, the company proclaimed that the new RTX graphics cards are off to a great start. In the first eight weeks after the first RTX card became available, the series generated 45% more revenue than the previous GTX 10 series during its first eight weeks of availability.

I'll admit that's a great way to spin a lackluster product launch. It sounds convincing, doesn't it? The problem is that NVIDIA isn't making an apples-to-apples comparison. There are some key differences between these two launches that make this impressive statistic largely meaningless.

Image source: NVIDIA.

A bunch of problems

The GTX 10 series began launching toward the end of May 2016 with the GTX 1080. That high-end card was followed by the cheaper GTX 1070 in early June. Those were the only two cards available in the first two months after the initial launch priced above $299.

Data source: Anandtech.

Notably, the super-high-end GTX 1080 Ti wasn't launched until March of the following year. The GTX 1060 launched toward the end of the initial eight-week period, but it carried an MSRP of $249.

Let's compare the GTX 10 series launch to the RTX 20 series launch:

Data source: Anandtech.

There are two big differences. First, the RTX 20 series launch period included three products, not just two, and those products spanned a much wider price range. Second, RTX 20 series prices were much higher overall. NVIDIA basically pulled forward revenue compared to the GTX 10 series launch by releasing more products earlier and by shifting toward more high-end products in the initial launch period.

Seasonality is also an issue. The GTX 10 series began launching in the summer, while the RTX 20 series launched prior to the holiday season. It would make much more sense to compare revenue figures for a period much longer than eight weeks to smooth out any seasonality. But I suspect NVIDIA chose eight weeks because the numbers looked good.

Check out the latest earnings call transcript for NVIDIA.

Another wrinkle is that the GTX 10 series suffered from shortages early on. That was well before demand from cryptocurrency miners spiked prices in 2017, so the cryptocurrency bubble wasn't a factor. Again, choosing a longer period for the comparison would have minimized this issue.

NVIDIA is still the dominant leader in the graphics card market. At the high end, it's mostly competing with itself, as rival Advanced Micro Devices hasn't been able to crack that portion of the market. But the RTX 20 series is not the home run that NVIDIA wants you to believe it is. Reporting 45% growth of a carefully selected metric is nothing more than moving the goalposts.