Arm Holdings nasdaq Arm Faces Market Turbulence As Q3 Guidance Disappoints

Arm Holdings (NASDAQ: ARM) Faces Market Turbulence as Q3 Guidance Disappoints

Arm Holdings (NASDAQ: ARM) witnessed a sharp decline on Thursday following the release of its first quarterly earnings report since rejoining the public market.

The semiconductor technology firm outperformed market expectations, with quarterly EPS at $0.36, well above the consensus estimate of $0.26 in the second quarter. However, the guidance for the third quarter and full year fell short, leaving investors disappointed.

The revenue for Q2 reached $806 million, marking a 28% year-over-year growth, outpacing the consensus estimate of $746.9 million. This growth was attributed to high-value, long-term license agreements with top-tier technology firms and a boost in royalty revenue due to both market share expansion and higher royalty rates.

However, the forward-looking guidance provided by ARM for Q3/24 proved less optimistic. The company projected third-quarter EPS in the range of $0.21-$0.28, compared to the consensus of $0.27, with revenue projected at $720-$800 million.

The full-year outlook is also conservative, with expected EPS between $1.00-$1.10, versus the consensus estimate of $1.04, and revenue of $2.96-$3.08 billion, compared to the consensus of $2.96 billion.

Annualized Contract Value (ACV) reached $1.108 billion in the second quarter, indicating a 3% growth compared to the previous year. Remaining performance obligations (RPO) also grew 38% year-over-year to $2.414 billion.

Arm Holdings (NASDAQ: ARM) expressed satisfaction with its Q2 FYE24 performance, stating,

“We didn’t just have the IPO to celebrate in Q2 FYE24, it was also a great quarter financially, operationally, and strategically.”

The company also emphasized the strength of its diversified business and the growing demand for new Arm technology, particularly in the AI sector.

Analysts at HSBC expressed a cautious outlook, noting that the company provided “muted” guidance compared to smartphone peers.

The analysts stated,

“We continue to remain constructive on its long-term model toward higher royalties and flexible licensing model. However, we maintain our view that it takes time for earnings growth potential to resume.”

The market reaction was swift, with ARM stock down $3.33 or 6.16% in an afternoon trading. ARM shares are now changing hands at $51.03.

The September initial public offering (IPO) set the share price at $51, resulting in a valuation of $65 billion for the UK-based semiconductor company backed by Softbank.