Seagate (NASDAQ:STX) Reports Q1 In Line With Expectations, Provides Encouraging Quarterly Guidance

Adam Hejl /
2021/10/22 8:18 am EDT
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Data storage manufacturer Seagate (NASDAQ:STX) reported results in line with analyst expectations in Q1 FY2022 quarter, with revenue up 34.6% year on year to $3.11 billion. Guidance also exceeded expectations with next quarter revenues guided to $3.1 billion, or 2.06% above analyst estimates. Seagate made a GAAP profit of $526 million, improving on its profit of $223 million, in the same quarter last year.

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Seagate (STX) Q1 FY2022 Highlights:

  • Revenue: $3.11 billion vs analyst estimates of $3.1 billion (small beat)
  • EPS (non-GAAP): $2.35 vs analyst estimates of $2.21 (6.34% beat)
  • Revenue guidance for Q2 2022 is $3.1 billion at the midpoint, above analyst estimates of $3.03 billion
  • Free cash flow of $379 million, roughly flat from previous quarter
  • Inventory Days Outstanding: 50, down from 51 previous quarter
  • Gross Margin (GAAP): 30.6%, up from 25.7% same quarter last year

“Seagate had an exceptional start to the fiscal year with solid revenue growth, significant profit expansion and higher free cash flow generation in the September quarter. Mass capacity revenue topped the $2 billion mark for the first time, led by ongoing demand from cloud data center customers and strength in the video and image applications markets. Our results demonstrate consistent execution, a sustained healthy demand environment and positive structural change in storage industry dynamics. Collectively these factors led to achieving margin levels consistent with our long-term targets and support our increased revenue growth outlook for fiscal 2022,” said Dave Mosley, Seagate’s chief executive officer.

The developer of the original 5.25inch hard disk drive, Seagate (NASDAQ:STX) is a leading producer of data storage solutions, including hard drives and Solid State Drives (SSDs) used in PCs and data centers.

Sales Growth

Seagate's revenue growth over the last three years has been slow, averaging 0.86% annually. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $2.31 billion to $3.11 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).

Seagate Total Revenue

This was a solid quarter for Seagate as revenues grew 34.6%, topping analyst estimates by 0.33%. This marks 3 straight quarters of revenue growth, implying we are mid-cycle for Seagate, as a typical upcycle tends to last 8-10 quarters.

Seagate believes the growth is set to continue, and is guiding for revenue to grow 15.7% next quarter, and Wall St analysts are estimating growth 3.78% over the next twelve months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as the cyclical nature of semiconductor supply and demand impacts profitability. In a tight supply environment, inventories tend to be low, allowing chipmakers to exert pricing power, which helps increase gross margins. The inverse also applies, as rising inventory levels tend to foreshadow weakening pricing power and declining gross margins.

Seagate Inventory Days Outstanding

This quarter, Seagate’s inventory days came in at 50, 2 days below the five year average, showing no indication there would be an excessive inventory buildup at the moment.

Key Takeaways from Seagate's Q1 Results

With a market capitalization of $18.5 billion, more than $991 million in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We were very impressed by the strong improvements in Seagate’s gross margin this quarter. And we were also glad to see the improvement in operating margin. Overall, we think this was still a really good quarter, that should leave shareholders feeling very positive. The company is up 1.89% on the results and currently trades at $83.81 per share.

Seagate may have had a good quarter, so should you 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.

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