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Broadcom Q3 Earnings Beat Estimates, Shares Fall on Weak Q4 Guidance
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Broadcom (AVGO - Free Report) reported third-quarter fiscal 2024 non-GAAP earnings of $1.24 per share, beating the Zacks Consensus Estimate by 3.33% and increasing 18.1% year over year.
Net revenues surged 47.3% year over year to $13.07 billion, surpassing the Zacks Consensus Estimate by 1.31%. The top-line growth was driven by strong demand for AI semiconductor solutions and VMware.
However, AVGO shares were down more than 7% in pre-market trading following a disappointing fourth-quarter fiscal 2024 guidance. The stock has gained 37.9% compared with the Zacks Computer & Technology sector’s appreciation of 16% year to date.
AVGO’s Top-Line Growth Rides on Strong AI & VMware
Semiconductor solutions revenues (55.6% of net revenues) totaled $7.27 billion, up 5% year over year. The uptick was driven by the strong adoption of hyperscaler.
Networking revenues of $4 billion soared 43% year over year and contributed 55% to Broadcom’s semiconductor revenues. The company witnessed strong demand for its custom AI accelerators, AI networking solutions, Ethernet switching, optical lasers, thin dies, PCI Express switches and Network Interface Cards from hyperscale customers.
Non-AI networking revenues improved 17% sequentially although it was down 41% year over year.
Storage connectivity revenues of $861 million. It plunged 25% year over year but improved 5% sequentially.
Broadband revenues declined 49% year over year to $557 million and contributed 8% to semiconductor revenues. Wireless revenues of $1.7 billion contributed 23% to semiconductor revenues and were up 1% year over year.
Industrial resale revenues of $164 million declined 31% year over year.
Infrastructure software revenues (44.4% of net revenues) soared 200% year over year to $5.8 billion, including a $3.8 billion contribution from VMware.
Annualized booking value for VMware solutions jumped 32% year over year to $2.5 billion. VMware Cloud Foundation accounted for 80% of total VMware products booked in the reported quarter.
AVGO’s Operating Details
The non-GAAP gross margin was 77% compared with 107% in the year-ago quarter.
Research and development, as a percentage of net revenues, decreased 600 bps year over year to 11.3%. SG&A expenses decreased 420 bps to 5.3%.
Adjusted EBITDA increased 11% year over year to $8.22 billion. The adjusted EBITDA margin was 62.9% compared with 83.7% reported in the year-ago quarter.
The non-GAAP operating margin was 60.8% compared with 80.5% reported in the year-ago quarter.
AVGO’s Balance Sheet & Cash Flow
As of Aug. 4, 2024, cash and cash equivalents were $9.95 billion compared with $9.8 billion reported as of May 5, 2024.
Total debt (including the current portion of $3.16 billion) was $70 billion as of Aug. 4, 2024, compared with $74 billion as of May 5, 2024.
Broadcom generated $4.96 billion cash flow from operations compared with $4.72 billion in the previous quarter. The free cash flow was $4.79 billion compared with $4.44 billion in the prior quarter.
In the reported quarter AVGO paid $2.5 billion (52.5 cents per share) in cash dividends. For fourth-quarter fiscal 2024, it expects to pay a dividend of 53 cents per share.
AVGO Offers Q4 Guidance
For fourth-quarter fiscal 2024, Broadcom expects revenue of approximately $14 billion. Adjusted EBITDA margin is expected to be 64%. Gross margin is expected to decline 100 bps on a sequential basis.
Considering fiscal fourth-quarter guidance for revenues, fiscal 2024 revenues are now implied at $51.5 billion, including a contribution from VMware, suggesting an increase of 42% from the prior-year levels.
Adjusted EBITDA margin is now expected to be 61.5%.
AI revenues are expected to increase by more than $12 billion.
Image: Bigstock
Broadcom Q3 Earnings Beat Estimates, Shares Fall on Weak Q4 Guidance
Broadcom (AVGO - Free Report) reported third-quarter fiscal 2024 non-GAAP earnings of $1.24 per share, beating the Zacks Consensus Estimate by 3.33% and increasing 18.1% year over year.
Net revenues surged 47.3% year over year to $13.07 billion, surpassing the Zacks Consensus Estimate by 1.31%. The top-line growth was driven by strong demand for AI semiconductor solutions and VMware.
However, AVGO shares were down more than 7% in pre-market trading following a disappointing fourth-quarter fiscal 2024 guidance. The stock has gained 37.9% compared with the Zacks Computer & Technology sector’s appreciation of 16% year to date.
AVGO’s Top-Line Growth Rides on Strong AI & VMware
Semiconductor solutions revenues (55.6% of net revenues) totaled $7.27 billion, up 5% year over year. The uptick was driven by the strong adoption of hyperscaler.
Networking revenues of $4 billion soared 43% year over year and contributed 55% to Broadcom’s semiconductor revenues. The company witnessed strong demand for its custom AI accelerators, AI networking solutions, Ethernet switching, optical lasers, thin dies, PCI Express switches and Network Interface Cards from hyperscale customers.
Broadcom Inc. Price, Consensus and EPS Surprise
Broadcom Inc. price-consensus-eps-surprise-chart | Broadcom Inc. Quote
Non-AI networking revenues improved 17% sequentially although it was down 41% year over year.
Storage connectivity revenues of $861 million. It plunged 25% year over year but improved 5% sequentially.
Broadband revenues declined 49% year over year to $557 million and contributed 8% to semiconductor revenues. Wireless revenues of $1.7 billion contributed 23% to semiconductor revenues and were up 1% year over year.
Industrial resale revenues of $164 million declined 31% year over year.
Infrastructure software revenues (44.4% of net revenues) soared 200% year over year to $5.8 billion, including a $3.8 billion contribution from VMware.
Annualized booking value for VMware solutions jumped 32% year over year to $2.5 billion. VMware Cloud Foundation accounted for 80% of total VMware products booked in the reported quarter.
AVGO’s Operating Details
The non-GAAP gross margin was 77% compared with 107% in the year-ago quarter.
Research and development, as a percentage of net revenues, decreased 600 bps year over year to 11.3%. SG&A expenses decreased 420 bps to 5.3%.
Adjusted EBITDA increased 11% year over year to $8.22 billion. The adjusted EBITDA margin was 62.9% compared with 83.7% reported in the year-ago quarter.
The non-GAAP operating margin was 60.8% compared with 80.5% reported in the year-ago quarter.
AVGO’s Balance Sheet & Cash Flow
As of Aug. 4, 2024, cash and cash equivalents were $9.95 billion compared with $9.8 billion reported as of May 5, 2024.
Total debt (including the current portion of $3.16 billion) was $70 billion as of Aug. 4, 2024, compared with $74 billion as of May 5, 2024.
Broadcom generated $4.96 billion cash flow from operations compared with $4.72 billion in the previous quarter. The free cash flow was $4.79 billion compared with $4.44 billion in the prior quarter.
In the reported quarter AVGO paid $2.5 billion (52.5 cents per share) in cash dividends. For fourth-quarter fiscal 2024, it expects to pay a dividend of 53 cents per share.
AVGO Offers Q4 Guidance
For fourth-quarter fiscal 2024, Broadcom expects revenue of approximately $14 billion. Adjusted EBITDA margin is expected to be 64%. Gross margin is expected to decline 100 bps on a sequential basis.
Considering fiscal fourth-quarter guidance for revenues, fiscal 2024 revenues are now implied at $51.5 billion, including a contribution from VMware, suggesting an increase of 42% from the prior-year levels.
Adjusted EBITDA margin is now expected to be 61.5%.
AI revenues are expected to increase by more than $12 billion.
Zacks Rank & Stocks to Consider
Currently, AVGO has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader technology sector are AudioEye (AEYE - Free Report) , Aspen Technology (AZPN - Free Report) and Paypal (PYPL - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
AudioEye’s shares have gained 285.6% in the year-to-date period. The long-term earnings growth rate for AEYE is pegged at 25%.
Aspen Technology’s shares have climbed 3.8% in the year-to-date period. The long-term earnings growth rate for AZPN is currently projected at 13.12%.
Shares of PayPal have increased 17.3% in the year-to-date period. The long-term earnings growth rate for PYPL is pegged at 15.9%