10004

Broadcom (NASDAQ:AVGO) Reports Strong Guidance For Q1 2022, Stock Soars


Radek Strnad /
2021/12/09 4:31 pm EST
Add to Watchlist

Fabless chip and software maker Broadcom (NASDAQ:AVGO) reported results in line with analyst expectations in Q4 FY2021 quarter, with revenue up 14.5% year on year to $7.4 billion. Guidance for next quarter's revenue was $7.6 billion at the midpoint, which is 5.23% above the analyst consensus. Broadcom made a GAAP profit of $1.98 billion, improving on its profit of $1.32 billion, in the same quarter last year.

Is now the time to buy Broadcom? Access our full analysis of the earnings results here, it's free.

Broadcom (AVGO) Q4 FY2021 Highlights:

  • Revenue: $7.4 billion vs analyst estimates of $7.35 billion (small beat)
  • EPS (non-GAAP): $7.81 vs analyst estimates of $7.77 (small beat)
  • Revenue guidance for Q1 2022 is $7.6 billion at the midpoint, above analyst estimates of $7.22 billion
  • Free cash flow of $3.45 billion, roughly flat from previous quarter
  • Inventory Days Outstanding: 61, flat on previous quarter
  • Gross Margin (GAAP): 74%, up from 72.8% same quarter last year

"Broadcom concluded the year with record fourth quarter results driven by a rebound in enterprise, and continued strength from cloud and service provider demand. Our infrastructure software growth continues to be steady with our focus on strategic customers," said Hock Tan, President and CEO of Broadcom Inc.

Originally the semiconductor division of Hewlett Packard, and its today’s form a result of a series of mergers and acquisitions, Broadcom (NASDAQ:AVGO) is a semiconductor conglomerate that spans wireless, networking, data storage, and industrial end markets along with an infrastructure software business focused on mainframes and cybersecurity.

Sales Growth

Broadcom's revenue growth over the last three years has been slow, averaging 9.68% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $6.46 billion to $7.4 billion. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Broadcom Total Revenue

While Broadcom beat analysts' revenue estimates, this was still a slower quarter with 14.5% revenue growth.

Broadcom believes the growth is set to accelerate, and is guiding for revenue to grow 17.5% YoY next quarter, and Wall St analysts are estimating growth 7.35% over the next twelve months.

There are others doing even better than Broadcom. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

Broadcom Inventory Days Outstanding

This quarter, Broadcom’s inventory days came in at 61, which is exactly around the five year average, suggesting there isn't any unusual buildup of inventory at the moment.

Key Takeaways from Broadcom's Q4 Results

We enjoyed the positive outlook Broadcom provided for the next quarter’s revenue. That feature of these results really stood out as a positive. On the other hand, revenue growth is overall a bit slower these days. Zooming out, we think this was a decent quarter, showing the company is staying on target. The company is up 5.21% on the results and currently trades at $613.85 per share.

Should you invest in Broadcom right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.