Arm Holdings shares fell on Thursday even though the company beat Q2 revenue and earnings estimates. Weak royalty revenue and a broad chipmaker sell-off drove the drop, according to The Motley Fool.
Shares of Arm Holdings were down 11.7% at 12:21 p.m. ET, bringing the stock's week-to-date loss to 18%. The drop came after an earnings report that topped Wall Street's expectations on the headline numbers.
Arm beats estimates on revenue and earnings
Arm reported record-breaking fiscal Q2 revenue of $1.44 billion, up 27% year over year, against estimates of $1.38 billion. Earnings rose 33% to $0.52 per share, versus a consensus of $0.47.
Guidance for the quarter now underway also suggested top-line growth of 24%. Third-quarter revenue guidance of $1.54 billion (+/- $50 million) sits slightly above the analyst consensus of $1.53 billion, but investors may have expected a stronger growth outlook from the company.
Royalty revenue disappoints analysts
The main red flag was royalty revenue, which improved only 8% to $670 million, while licensing revenue rose 50% to $773 million. The Motley Fool links the royalty softness to smartphone memory prices, which could linger for the foreseeable future.
The weak royalty figure led Barclays to cut its price target on ARM from $360 per share to $325. Goldman Sachs reiterated its sell rating and a $160 price target, against a stock price near $165.
Chip sector sell-off adds pressure
Much of the selling also reflects a reset across most chipmakers' stocks. Nvidia, Micron and Qualcomm were also in the red on Thursday, which made it easier for investors to sell ARM.
Qualcomm's fiscal fourth-quarter handset revenue fell 26%, and its guidance for the fiscal first quarter was lackluster, the article says. Other chip companies face similar headwinds.
Source: The Motley Fool
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