Arm Holdings (ARM 10.11%) felt something like an unwanted limb over the past few days, largely because of an earnings report that struck the wrong chord with more than a few investors. Several analyst price target cuts only highlighted this disappointment. Ultimately, according to data compiled by S&P Global Market Intelligence, the specialty tech company's shares plummeted by over 15% this week.
Top-line growth, bottom-line slide
U.K.-based Arm published its results for the first quarter of its fiscal 2026 on Wednesday. The report showed that the company managed to increase its total revenue by 12% year over year to slightly more than $1.05 billion. That was largely due to a 25% increase in royalty revenue, which landed at $585 million, and despite a 1% slump in licensing revenue to $468 million.
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Non-GAAP (adjusted) net income traveled in the opposite direction. It fell to $374 million, or $0.35 per share, compared with the year-ago profit of $419 million. With those numbers, Arm met the consensus analyst estimate for profitability, although it missed slightly on revenue -- pundits following the stock were expecting it to earn $1.06 billion.
More of a concern for investors was management's guidance for the company's current (second) quarter. Its forecast is for $1.01 billion to $1.11 billion in revenue, which, if achieved, would be down or, at best, essentially flat over the first quarter. Meanwhile, adjusted earnings were forecast at $0.29 to $0.37.
NASDAQ: ARM
Key Data Points
Bearish analyst moves
Although analyst reactions to the quarter were mixed, enough pundits trimmed their price targets to affect sentiment on the stock. UBS's Timothy Arcuri, for one, shaved his fair value assessment to $175 per Arm share from his preceding $185. He did, however, maintain his buy recommendation. Lee Simpson of Morgan Stanley acted similarly, reducing the price target to $180 per share from $194 while keeping an overweight (buy, in other words) rating intact.
