The company missed analyst revenue expectations of $3.24 billion per Refinitiv, with the company recording $3.18 billion for the quarter. Guidance for the fourth quarter was $2.70 billion, plus or minus 2 percent, excluding certain items. That compares with the Refinitiv consensus estimate of $3.40 billion.
Nvidia shares tumbled 18.8 percent at Friday’s close after missing on revenue and guidance in its third-quarter 2019 earnings report. Nvidia missed analyst expectations on third-quarter 2019 revenue and guidance for the next quarter.
The chipmaker fell 18.8 percent Friday. Advanced Micro Devices, one of Nvidia’s top competitors, also fell Friday, closing down 3.9 percent.
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Surplus inventory weighed heavily on the company’s fourth-quarter guidance. On a call with analysts following the report Thursday, CEO Jensen Huang said it could take up to two quarters to move through the additional inventory. In notes Friday, analysts expressed varying degrees of concern over the excess inventory, with some saying it would be a temporary problem. Others, such as Wells Fargo, said “investors will be frustrated”
“Our Q4 outlook for gaming reflects very little shipment in the midrange Pascal segment to allow channel inventory to normalize,” Chief Financial Officer Colette Kress said on the call. Revenue for Nvidia’s biggest segment, gaming, fell below the $1.89 billion FactSet consensus estimate, coming in at just $1.76 billion for the quarter.
While we can appreciate that NVIDIA weak F4Q19 outlook is impacted by a 1-2 quarter work-down of Pascal mid-range gaming card inventory in the channel (~$600M; assuming no sell-in in F4Q19 as crypto-related dynamics flush through the channel), coupled with a seasonal decline in game console builds, we think investors will be frustrated by NVIDIA’s comments exiting F2Q19 that: “we [NVIDIA] see inventory at the lower-ends of our stack…inventory is well positioned for back-to-school and building season that’s coming up on F3Q19.” Susquehanna, which had predicted a decline in Nvidia’s cryptocurrency-related revenue, said the weak revenue and guidance “appears significantly larger than our sizable expectation.” In the segment containing crypto-related revenue, Nvidia reported a 23 percent year-over-year decline at $148 million, which still beat the FactSet consensus estimate of $102 million. The firm reduced its price target estimates from $230 to $210.
Nvidia’s revenue and guidance miss appears to have an effect on one of its closest competitors in the computer chip space, Advanced Micro Devices. AMD also closed down 3.9 percent Friday.