The Six Five team discusses Arm Q4 FY24 earnings.
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Transcript:
Patrick Moorhead: Arm, fourth quarter fiscal year 2024 earnings. Arm crushed it quarterly, beat, beat, raise, raise, but the stock got hammered because of the annual guide out there. And Stacy, I’m going to kick this off and I know you have another colleague who covered this from an investment point of view, but listen, this story was very similar to the prior quarter, which was more data center, and we just saw Google Axion come online and this adds to Cobalt and what they’re doing over at AWS with Graviton and a couple other folks, Richer what’s called CSS, which is a product that it’s not just a royalty, it’s not a license, they’re actually helping their customers with their solution taking it all the way even to software verification/validation. They had bigger mobile cores, right?
You’ve seen companies like MediaTek create, where it doesn’t have any of the efficiency cores, it’s all performance cores, and based on their royalty model, that is much more expensive. Now, we also are seeing a shift from v8 instruction set to v9, and Arm pays more money for that. Now, there is a rumor out there that the new Apple M4 uses v9, which gives it via, what’s called, SME a little bit of a performance pop, but you know what? Still wasn’t good for the street.
Stacy Rasgon: Yeah. Well, so again, so my colleague covers Arm, so I’ll refrain from any investment conclusion, but some factual statements. You’re right, the stock did sell off. I don’t think it ended, it wasn’t horrible. Arm, by the way, has been really interesting. They had an IPO, I can’t remember when it went out, $46 a share or something like that.
Patrick Moorhead: It had a one-day pop of 50% or something.
Stacy Rasgon: Well, it was even bigger than that because I think their first earnings, you had a massive short squeeze on it and it went to I can’t remembers, for the top $120 or something. It was just massive, right? And it’s been very volatile since then. The float, it’s not just the float, it’s how many shares are actually out there or actively traded? There’s a lot of it that’s still locked up.
Patrick Moorhead: Yes.
Stacy Rasgon: Usually after an IPO, there’s like a six-month lockup period before all the other big shareholders can sell, and when the trading volume’s not very high, you can get bigger swings. So it’s been very volatile from that standpoint, and it’s a very expensive stock and that was the issue. You’re right, the quarter was good, the quarterly guide was good. The full year guide was slightly, I think, a little below on revenue versus the street. I think EPS was a little above, but I don’t know, stocks was, where was it, 68 times earnings or something like that, just expensive. So expectations were high and it wasn’t quite enough. That’s it. I don’t think it was anything more than that, and I doubt that anybody’s view on the company really changed one way or the other based on their earnings-
Daniel Newman: There’s another-
Stacy Rasgon: … Based on the number of the tailwinds potentially that they have going for them.
Daniel Newman: Yeah, this seems to be another one of those with all the excitement, enthusiasm about the new NVIDIA flavors, how much was Arm going to indicate its acceleration. We both, I think Pat you talked to Rene, I talked to Rene. He was beaming. He felt really good about the result. It was a guide. There was a couple of deeper things on there. The profit, I think almost all the profit in the quarter actually came from a subsidy, there was like a tax break, 177-
Stacy Rasgon: Oh, I’m not close to Arm.
Daniel Newman: That’s okay. Fairly enough, because I was leading with the headlines a bit myself. I got underneath it, put something out on Twitter, got some person that was doing deep technical analysis, started yelling at me about it ’cause all I want to say is this, Stacy, everybody starts scrutinizing the way companies get to their adjusted number. We will never have a conversation again about an earnings report ’cause everything from taxing to depreciation to the way people make these numbers hit, we could scrutinize every one of these reports or we just go back to GAP and only talk about GAP.
Stacy Rasgon: I only have one company in my coverage that does GAP reporting. Though they all report GAP, I only have one company that doesn’t do any sort of pro-forma adjustments. It’s Texas Instruments. They do straight GAP. Analog Devices and some of the other guys, my semi caps, they do a pro-forma, but they include stock comp at least in the numbers. And I’ve got a number of others that exclude, most of the others exclude stock comp. A lot of them that do acquisitions will exclude amortization, which is fair maybe, but you kind of have to know what you’re comparing. If you’re just comparing on one multiple to another, it may not necessarily be apples to apples.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
