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Why Aquantia Corp Stock Popped 36%

By Rich Smith – May 6, 2019 at 1:59PM

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A big cash payout is pushing Aquantia stock up.

What happened

Aquantia (AQ) stock is up 35.9% as of 1:15 p.m. EDT, a nice change from the nearly as big percentage decline the stock suffered after reporting fourth-quarter earnings earlier this year. The maker of high-speed Ethernet chips is enjoying its bounce today, however, not because of the earnings it reported earlier this morning, but in spite of them.

Aquantia reported a loss of $0.37 per share for its fiscal first quarter 2019 on sales of $17 million -- worse results than Wall Street had been expecting. Yet the stock is up big time today because, in addition to reporting earnings, Aquantia announced that it's about to be bought.

Dollar bill folded as an arrow points up

Image source: Getty Images.

So what

Specifically, bought by Marvell Technology Group (MRVL 5.71%).

As announced in a press release this morning, Marvell intends to acquire each outstanding share of Aquantia for $13.25 cash -- $452 million in all -- in an effort to "fuel Marvell's leadership in the transformation of the in-car network to high-speed Ethernet over the next decade."

Marvell said the deal will "be immediately accretive to Marvell's non-GAAP earnings per share and generate significant annual run-rate synergies of $40 million to be realized within 12 months after the transaction closes."

Now what

Closing is expected to take place before the end of this calendar year -- regulators permitting.

Once that happens, Marvell will add Aquantia's $121 million in trailing sales (but no profits) to its own $2.87 billion revenue stream, bringing Marvell to within a whisker of being a $3 billion-a-year company.

That's the good news. The bad news is that Aquantia's history of losses (the company hasn't earned a profit in five years) may do little to help Marvell's earnings. Rather, it seems likely to only add to Marvell's own $179 million in trailing losses, and indeed grow the figure to more than $190 million.

But that's Marvell shareholders' problem now. Aquantia shareholders can just happily count their profits on this very profitable day.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Marvell Technology Group Ltd. Stock Quote
Marvell Technology Group Ltd.
$47.04 (5.71%) $2.54
Aquantia Corp. Stock Quote
Aquantia Corp.

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