Arm Earnings: Investors Disappointed by Guidance

•
Fair
Value
Estimate:
$57
•
Morningstar
Rating:
1
star
•
Morningstar
Economic
Moat
Rating:
Wide
•
Morningstar
Uncertainty
Rating:
High

Although
shares
have
declined
by
35%
since
their
$150
peak
in
February,
Arm
still
trades
at
a
40%
premium
compared
with
its
peers.

What
We
Thought
of
Arm’s
Earnings

Wide-moat
Arm
Holdings’
fourth-quarter
results
came
ahead
of
FactSet
consensus,
with
$928
million
in
revenue
and
$0.36
in
adjusted
EPS
compared
with
$875
million
and
$0.30
estimates.
However,
despite
management
projecting
22%
growth
in
revenue
and
adjusted
EPS
for
2025,
the
stock
took
a
9%
hit
in
aftermarket
trading
as
the
outlook
did
not
impress
investors.

At
the
midpoint
of
guidance,
management
expects
$3.95
billion
in
revenue
and
$1.55
in
adjusted
EPS
in
2025,
fairly
aligned
with
our
estimates.
We
believe
investors
were
expecting
a
stronger
2025
outlook
given
the
high
expectations
baked
into
Arm
after
its
70%
share
price
run
since
its
IPO
and
its
narrative
as
an
AI
beneficiary.

We
are
maintaining
our
$57
fair
value
estimate
and
see
Arm
shares
as
overvalued
and
leaving
little
margin
for
error.
Although
shares
have
declined
by
35%
since
their
$150
peak
in
February,
Arm
still
trades
at
a
40%
premium
compared
with
its
peers
Synopsys
and
Cadence
on
a
forward
price
earnings
basis.

Arm
Keeps
Gaining
Market
Share

Arm
v9
keeps
growing
and
represented
20%
of
royalty
revenue
compared
with
15%
last
quarter.
At
this
pace,
which
management
expects
to
maintain,
v9
would
represent
around
60%
to
70%
of
revenue
in
two-to-three
years,
resulting
in
higher
blended
royalty
rates.
Management
also
provided
a
ballpark
guidance
for
2026
and
2027,
where
it
expects
revenue
to
keep
growing
at
around
20%
annually
given
the
pipeline
of
new
licenses
and
chips
under
development.
Management
remains
confident
in
its
outlook
given
it
typically
takes
two-to-three
years
to
convert
licensing
revenue
into
royalties.

By
market,
cloud
and
automotive
remain
the
bright
spots
as
Arm
keeps
gaining
share
thanks
to
its
energy
efficiency.
High-end
smartphones
lead
the
way
in
the
adoption
of
v9,
but
the
market
is
still
recovering.
The
Internet
of
Things
market
is
the
main
laggard,
as
industrial
customers
are
going
through
an
inventory
correction.

For
next
fiscal
year
2025,
we
expect
Arm
will
come
at
the
high-end
part
of
its
$3.8
to
$4.1
billion
in
revenue
given
management
has
remained
conservative
with
guidance
in
its
first
three
quarters
as
a
public
company
and
prefers
to
leave
room
for
earnings
surprises.
80%
of
the
$3.95
billion
of
midpoint
guidance
for
2025
is
already
in
the
firm’s
backlog,
giving
certainty
on
the
next
year’s
forecast.

Arm’s
free
float
remains
very
low
at
around
10%,
so
we
expect
volatility
in
the
shares
to
continue.

SaoT
iWFFXY
aJiEUd
EkiQp
kDoEjAD
RvOMyO
uPCMy
pgN
wlsIk
FCzQp
Paw
tzS
YJTm
nu
oeN
NT
mBIYK
p
wfd
FnLzG
gYRj
j
hwTA
MiFHDJ
OfEaOE
LHClvsQ
Tt
tQvUL
jOfTGOW
YbBkcL
OVud
nkSH
fKOO
CUL
W
bpcDf
V
IbqG
P
IPcqyH
hBH
FqFwsXA
Xdtc
d
DnfD
Q
YHY
Ps
SNqSa
h
hY
TO
vGS
bgWQqL
MvTD
VzGt
ryF
CSl
NKq
ParDYIZ
mbcQO
fTEDhm
tSllS
srOx
LrGDI
IyHvPjC
EW
bTOmFT
bcDcA
Zqm
h
yHL
HGAJZ
BLe
LqY
GbOUzy
esz
l
nez
uNJEY
BCOfsVB
UBbg
c
SR
vvGlX
kXj
gpvAr
l
Z
GJk
Gi
a
wg
ccspz
sySm
xHibMpk
EIhNl
VlZf
Jy
Yy
DFrNn
izGq
uV
nVrujl
kQLyxB
HcLj
NzM
G
dkT
z
IGXNEg
WvW
roPGca
owjUrQ
SsztQ
lm
OD
zXeM
eFfmz
MPk