A month has gone by since the last earnings report for Synopsys (SNPS Quick QuoteSNPS - Free Report) . Shares have lost about 4.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Synopsys due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Synopsys Q4 Earnings and Revenues Top Estimates, Up Y/Y

Synopsys reported fourth-quarter fiscal 2023 non-GAAP earnings of $3.17 per share, beating the Zacks Consensus Estimate of $3.04. The bottom line improved 65.9% year over year, mainly driven by higher revenues and better cost management.

Revenues jumped 25% year over year to $1.6 billion, driven by growth across its business segments. The top line surpassed the Zacks Consensus Estimate of $1.58 billion.

Synopsys’ top-line results benefited from the increasing demand for its products amid the rapid adoption of generative AI technology. In the automotive segment, advanced driver assistance systems continue to drive the demand for the company’s Intellectual Property (IP) product.

Quarter in Detail

In the license-type revenue group, Time-Based Product revenues (54.4% of the total revenues) of $870.2 million were up 7.7% year over year. Upfront Product revenues (28.1%) moved upward by 77.4% to $449.2 million. Maintenance and Service revenues (17.5%) increased 25.5% to $279.7 million from the year-ago quarter’s $222.9 million.

Our fourth-quarter revenue estimates for the Time-Based Product, Upfront Product, and Maintenance and Services categories were pegged at $973.9 million, $327.5 million and $273.4 million, respectively.

Segment-wise, Electronic Design Automation (EDA) revenues (58.2% of revenues) were $931.4 million, up 11.7% year over year. Design IP revenues (32.1% of revenues) amounted to $513.7 million, while Software Integrity revenues totaled $131.7 million, contributing approximately 8.2% to the top line in the reported quarter. Other revenues were $22.3 million, representing 1.4% of the total revenues.

Our estimates for the EDA, Design IP, Software Integrity and Other segment third-quarter revenues were pegged at $1.02 billion, $377.2 million, $148.4 million and $29.2 million, respectively.

Geographically, Synopsys’ revenues in North America (52% of the total) and Europe (10%) were $832.8 million and $158 million, respectively. Revenues from Korea (11%), China (12%) and Other (16%) were $168.3 million, $188 million and $252 million, respectively.

The non-GAAP operating margin was 36.2%, expanding 870 basis points (bps) year over year.

Software Integrity’s adjusted operating margin expanded 680 bps year over year to 15.2%, while EDA’s adjusted operating margin declined 90 bps to 33.3%. The Design IP segment margin showed a massive improvement to 47% from 16.3% in the year-ago quarter.

Balance Sheet & Cash Flow

Synopsys had cash and short-term investments of $1.59 billion as of Oct 31, 2023 compared with $1.83 billion as of Jul 31, 2023.

The total long-term debt was $18.07 million at the end of the reported quarter, slightly down from $18.16 million as of Jul 31, 2023.

The company generated an operating cash flow of $326 million in the fourth quarter and $1.7 billion in fiscal 2023.

Guidance

For fiscal 2024, SNPS expects revenues between $6.57 billion and $6.63 billion. Non-GAAP earnings are estimated in the range of $13.33-$13.41 per share. Non-GAAP expenses are expected in the range of $4.14-$4.18 billion.

For the first quarter of fiscal 2024, Synopsys expects revenues between $1.63 billion and $1.66 billion. Management estimates non-GAAP earnings per share between $3.40 and $3.45. Non-GAAP expenses are anticipated in the band of $1.017-$1.027 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

The consensus estimate has shifted 10.8% due to these changes.

VGM Scores

Currently, Synopsys has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Synopsys has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Synopsys is part of the Zacks Computer - Software industry. Over the past month, Autodesk (ADSK Quick QuoteADSK - Free Report) , a stock from the same industry, has gained 12.1%. The company reported its results for the quarter ended October 2023 more than a month ago.

Autodesk reported revenues of $1.41 billion in the last reported quarter, representing a year-over-year change of +10.5%. EPS of $2.07 for the same period compares with $1.70 a year ago.

Autodesk is expected to post earnings of $1.95 per share for the current quarter, representing a year-over-year change of +4.8%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Autodesk. Also, the stock has a VGM Score of D.