ARM Holdings PLC released its first post-IPO earnings report on November 8, which beat revenue expectations but forecast disappointing sales.
The ticker before reported that Arm’s successful IPO debut led to other companies signaling interest in going public amid a recovering IPO market.
Shares of Arm would slow fall back to their original price target of $51 per share, a decline of 17.8% following their successful IPO in September.
Arm’s post-IPO earnings presents a 28% year-over-year increase in revenue, representing a record $806 million, a 196% increase in net income losses, amounting to $110 million, a 5% decrease in royalty revenue, representing $418 million and a 106% increase in license sales totaling $388 million.
Additionally, poor predicted Current quarter earnings per share and revenue were $0.21 to $0.28 per share and $720 million to $800 million, respectively, below analysts’ expectations, causing the stock to decline on November 8th fell by 7%.
“Following our successful IPO, Arm is off to an excellent start as a public company with record revenues built on the success of our diversified business,” Arm CEO Rene Haas wrote in a statement Letter to shareholders. “Licensing revenue increased 100% year-over-year as demand for AI drove increased investment across all end markets. Our licensing revenue benefited from market share gains in automotive and cloud computing as our latest technologies, such as Armv9, increased penetration across all markets where AI drives the need for our unique combination of performance and energy efficiency.”
poor quoted the uncertainty of some of its licensing agreements and accounting rules for revenue recognition as one of the primary reasons for its outlook. However, the company expressed optimism that the semiconductor industry will recover and allow for higher licensing revenues. Arm acknowledged that it was still vulnerable to “changes in the external macroeconomic environment.”
Despite strong results, analysts pointed out that Arm’s quarterly forecast and the decline in licensing revenue due to a slowdown in Arm’s smartphone sales raise concerns about the company’s growth story to diversify its business model.
“There are still questions about whether there is a sustainable growth narrative for this company,” said Ben Bajarin, CEO and principal analyst at Creative Strategies Reuters. “The quarter looked good, but the forecast didn’t look good – we don’t really understand what the customer cycle looks like.”
Haas expressed that Arm used to be a smartphone company, but its diversified business model combined with demand for Arm’s energy-efficient technology makes it no longer one, citing Arm its presence in the artificial intelligence trend as something that will “drive major growth” in the next few years.
“You know, 99% of cell phones in the world use some form of ARM technology, but in the future it won’t be about cell phones. We know that AI is such a big part of this story, we know that data centers are a big part of this story, and Arm has tried to change its story; “It’s trying to say it’s diversifying, but it’s having a hard time doing that,” Charlie Wells, a Bloomberg reporter and editor, said on an episode of Bloomberg TV. “And it looks like investors are still focused on the mobile phone slump, and that’s something that I think will continue to impact this company for a while.”