NVIDIA Q1 Earnings Beat Estimates - Analyst Blog

NVIDIA Corp. NVDA released first-quarter 2015 results in advance as the preliminary draft was unintentionally emailed to approximately 100 individuals within the company. Full results are scheduled to release on May 8 when the detailed financial commentary and outlook will also be available.

NVIDIA's first-quarter revenues came in at $1.10 billion which not only increased 16% on a year-over-year basis but also surpassed the Zacks Consensus Estimate of $1.05 billion. Adjusted earnings of 24 cents (includes stock-based compensation but excludes amortization, gain on sale and other one-time items) on proportionate tax basis beat the Zacks Consensus Estimate of 17 cents.

Stabilization in the rate of PC decline and sale of high-end graphics cards likely drove the better-than-expected top-line performance. NVIDIA's GPU segment is dependent on PC sales and revenues from the segment contribute a significant portion of the total revenue. The Tegra business is also looking up, with companies such as Microsoft and LG reportedly selecting NVIDIA's mobile processor for their tablets and smartphones.

NVIDIA's adjusted gross margins (including stock-based compensation) expanded 50 basis points to 54.8%. On a year-over-year basis, the company's adjusted operating margins expanded from 9.6% to 14.6% while operating expenses, as a percentage of revenues, contracted from 44.7% to 41.2%. R&D was the main contributor, declining around 4 percentage points although SG&A also declined by about 62 basis points. NVIDIA's adjusted net income came in at $134.2 million or 24 cents per share which increased from $85.4 million or 14 cents reported in the year-ago quarter.

At the end of the first quarter, NVIDIA had $4.34 billion in cash and cash equivalents while its long-term debt stood at $1.37 billion.

The preliminary results depict NVIDIA to have outperformed the Zacks Consensus Estimate on both top and bottom lines. Although the company did not provide the outlook in the release, we expect it to beat the Zacks Consensus Estimate as demand for NVIDIA's gaming and high-end notebook GPUs are likely to remain encouraging.

We believe NVIDIA's innovative product pipeline that consists of SHIELD 2 and mobile processor Tegra K1 will boost top-line growth, going forward. The company's partnerships with VMware VMW and GE Intelligent Platforms also bode well over the long term.

Nonetheless, competition from the likes of Intel INTC and QUALCOMM Inc. QCOM remain the near term headwinds.

NVIDIA has a Zacks Rank #3 (Hold).