Universal Display (NASDAQ:OLED) Beats Q4 Sales Targets But Full Year Guidance Underwhelms

Adam Hejl /
2023/02/23 4:57 pm EST

OLED provider Universal Display (NASDAQ:OLED) reported Q4 FY2022 results beating Wall St's expectations, with revenue up 15.6% year on year to $169 million. On the other hand, guidance for the full year missed analyst expectations with revenues guided to $575 million at the midpoint, or 8.54% below analyst estimates. Universal Display made a GAAP profit of $65.1 million, improving on its profit of $45.9 million, in the same quarter last year.

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

Universal Display (OLED) Q4 FY2022 Highlights:

  • Revenue: $169 million vs analyst estimates of $149 million (13.5% beat)
  • EPS: $1.36 vs analyst estimates of $0.94 (45.4% beat)
  • Management's revenue guidance for upcoming financial year 2023 is $575 million at the midpoint, missing analyst estimates by 8.54% and predicting -6.75% growth (vs 11.2% in FY2022)
  • Free cash flow was negative $8.74 million, down from positive free cash flow of $28.3 million in previous quarter
  • Inventory Days Outstanding: 554, up from 413 previous quarter
  • Gross Margin (GAAP): 82.2%, up from 76.4% same quarter last year

“We ended 2022 strongly with record revenues and earnings,” said Brian Millard, Vice President and Chief Financial Officer of Universal Display Corporation.

Serving major consumer electronics manufacturers, Universal Display (NASDAQ:OLED) is a provider of organic light emitting diode (OLED) technologies used in display and lighting applications.

Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.

Sales Growth

Universal Display's revenue growth over the last three years has been strong, averaging 20.8% annually. But as you can see below, last year has not been especially strong, with quarterly revenue growing from $146.2 million to $169 million. 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).

Universal Display Total Revenue

This was an OK quarter for Universal Display with revenues growing 15.6%, ahead of analyst estimates by 13.5%. This marks 10 straight quarters of revenue growth, which means the current upcycle has had a good run, as a typical upcycle tends to be 8-10 quarters.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. 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.

Universal Display Inventory Days Outstanding

This quarter, Universal Display’s inventory days came in at 554, 211 days above the five year average, suggesting that that inventory has grown to higher levels than what we used to see in the past.

Key Takeaways from Universal Display's Q4 Results

With a market capitalization of $6.05 billion Universal Display is among smaller companies, but its more than $577.8 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We were impressed by how strongly Universal Display outperformed analysts’ revenue expectations this quarter. And we were also glad to see the improvement in gross margin. On the other hand, it was unfortunate to see that Universal Display's revenue guidance for the full year missed analyst's expectations and the revenue guidance for the full year was downgraded. Overall, this quarter's results were not the best we've seen from Universal Display. The company is up 3.73% on the results and currently trades at $134.24 per share.

Universal Display may have had a tough quarter, but does that actually create an opportunity to invest 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.