Why is Qualcomm (QCOM) up 13.7% since its last earnings report?

It’s been about a month since Qualcomm’s (QCOM) last earnings report. Shares have risen about 13.7% in that time, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Qualcomm facing a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the key drivers.

Qualcomm tops second-quarter earnings in automotive recurring revenue

Qualcomm reported relatively strong results for the second quarter of fiscal 2024, with the bottom and top lines exceeding the respective Zacks Consensus Estimates, driven by strong demand trends for Android phones and automotive companies. Both indicators improved year-on-year, driven by the strength of the business model, revenue diversification and the ability to proactively respond to the changing market scenario.

Management expects continued improvement in the demand trajectory for the remainder of fiscal 2024. Thanks to solid quarterly results and an optimistic outlook, the company’s shares rose following the earnings release.

Net income

On a GAAP basis, net income in the March quarter increased to $2,326 million, or $2.06 per share, from $1,704 million, or $1.52 per share, in the prior-year quarter. The increase in GAAP earnings was primarily due to revenue growth and lower operating expenses.

Non-GAAP quarterly net income was $2,761 million, or $2.44 per share, compared to $2,420 million, or $2.15 per share, in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 14 cents.

Revenue

On a GAAP basis, total revenues for the fiscal second quarter were $9,389 million, compared to $9,275 million in the prior-year quarter. Quarterly revenue topped the consensus estimate of $9,301 million. Despite soft industrial IoT demand patterns, Qualcomm posted record automotive revenues thanks to solid development of its Snapdragon Digital Chassis platform. Strength in the mobile phone industry also boosted results. Non-GAAP revenue for the reported quarter was $9,386 million, compared to $9,268 million a year earlier.

Segment results

Qualcomm CDMA Technologies (QCT) quarterly revenue was $8,026 million, up from $7,942 million, as a strong position in the automotive platform and higher demand for mobile phones were partially offset by reduced channel inventories in the IoT industry. Segment revenues exceeded our revenue estimates of $7,909 million. The company has achieved solid market positioning in the EDGE networking industry, which is helping to transform connectivity in cars, enterprises, homes, smart factories, next-generation desktops, wearables and tablets.

Automotive revenue increased 35% to a record $603 million, driven by increased content of new vehicle launches powered by the Snapdragon Digital Chassis Platform. This was the 14th consecutive quarter in which Qualcomm reported double-digit growth in automotive revenues. The company expects automotive revenue to grow to more than $4 billion in fiscal 2026. Mobile revenue increased 1% to $6,180 million, primarily driven by increased adoption of the Snapdragon 8 Gen 3 mobile platform in new launches flagship Android models. However, IoT revenue declined 11% to $1,243 million due to reduced inventory in the channel. The EBT margin for the QCT segment increased to 29% from 27%.

Qualcomm Technology Licensing (QTL) revenues were $1,318 million, up 2% year-over-year, driven by strong positions in the mobile and automotive industries. Segment revenues exceeded our estimates of USD 1,360 million. EBT margin increased to 71% from 68%.

The story continues

Cash flow and liquidity

Qualcomm generated $6.503 million in net cash from operations in the first six months of fiscal 2024, up from $4.552 million a year ago. At the end of the quarter, the company had $9,219 million in cash and cash equivalents and $14,543 million in long-term debt. During the quarter, the company repurchased 5 million shares for $731 million.

Guidance on question three

For the third quarter of fiscal 2024, Qualcomm expects GAAP revenues of $8.8 billion to $9.6 billion due to market stabilization, recovery in market demand and portfolio strength. Non-GAAP earnings are expected to be $2.15-$2.35 per share, while GAAP earnings are likely to be $1.74-$1.94 per share. QTL revenues are expected to be between $1.2 billion and $1.4 billion. For QCT, the company projects revenue of $7.5 billion to $8.1 billion.

How have estimates changed since then?

Over the last month, investors have witnessed an upward trend in estimate revisions.

As a result of these changes, the consensus estimate moved by 5.29%.

VGM results

Right now, Qualcomm has a solid Growth Score of B, but its Momentum Score is doing slightly better at A. However, the stock is rated D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has a Total VGM Score of B. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for the stock are trending upwards, and the scale of these revisions looks promising. Notably, Qualcomm carries a Zacks Rank of #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

Qualcomm belongs to the Zacks Wireless Equipment industry. Another stock in the same industry, Nokia (NOK), has gained 4.9% over the past month. More than a month has passed since the company announced its results for the quarter ended March 2024.

In the most recent quarter, Nokia reported revenue of $5.07 billion, representing a year-over-year change of -19.4%. EPS of $0.10 for the same period compared to $0.06 a year ago.

Nokia is expected to report earnings per share of $0.05 for the current quarter, which would represent a year-over-year change of -37.5%. Over the past 30 days, the Zacks Consensus Estimate has moved -9.1%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Nokia. The stock also has a VGM Rating of A.

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