Seagate Technology (NASDAQ:STX) shares surge after second-quarter sales beat expectations
Data storage maker Seagate (NASDAQ:STX) reported second-quarter 2024 results that beat Wall Street analysts’ expectations, with revenue up 17.8% year over year to $1.89 billion. Revenue guidance for the next quarter also beat expectations, coming in at $2.1 billion at the midpoint, beating analysts’ expectations by 1.6%. Non-GAAP earnings per share were $1.05, improving from a loss of $0.18 per share in the year-ago quarter.
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Seagate Technology (STX) Q2 2024 Highlights:
Revenue: $1.89 billion, slightly above analyst estimates of $1.87 billion.
Adjusted operating income: $327 million (20.9%) vs. analyst estimate of $270.4 million
EPS (non-GAAP): $1.05 (39.4% above analyst estimate of $0.75)
The midpoint of third-quarter 2024 revenue guidance is $2.1 billion, beating analyst expectations of $2.07 billion.
Gross margin (GAAP): 31.8% (up from 22.7% in the same period last year)
Inventory turnover days: 88 days, same as last quarter
Free cash flow was $380 million, up 197% from the prior quarter
Market cap: $22.3 billion
“Seagate delivered a strong June quarter driven by an improving cloud demand environment and closed the fiscal year with strong performance against our financial targets. Fourth quarter revenue grew 18% year over year, non-GAAP gross margin expanded nearly 31% and non-GAAP EPS was at the high end of our guidance range,” said Dave Mosley, Seagate’s chief executive officer.
Seagate (NASDAQ:STX), developer of the original 5.25-inch hard disk drive, is a leading manufacturer of data storage solutions such as hard drives and solid-state drives (SSDs) used in PCs and data centers.
Memory Semiconductors
The rapid increase in data generation and the need to support increased processing power for everything from consumer devices to data center servers are driving demand for memory chips. From content delivery networks, edge computing to the cloud, data storage is a critical component underpinning the global technology architecture. Additionally, secular growth factors such as machine learning and the boom in media-rich digital content are further accelerating the need for storage. As with all semiconductor sectors, memory manufacturers are highly cyclical, subject to imbalances in supply and demand and consumer product cycles.
Sales growth
Seagate Technology’s revenue has been declining for the past three years, declining at an average annual rate of 11.9%. However, as shown below, this was a strong quarter for the company, with revenue increasing to $1.89 billion from $1.6 billion in the same period last year. Semiconductors are a cyclical industry, and long-term investors need to be prepared for periods of high growth followed by periods of shrinking revenue (which can sometimes be a good time to buy).
The story continues
Seagate Technology Total Revenue
Seagate Technology had a decent quarter with revenue growing 17.8% year over year, in line with analysts’ expectations. Seagate Technology’s growth turned from negative to positive this quarter, which should be well received by shareholders.
Seagate Technology turned to positive revenue growth this quarter, and management expects this trend to continue: the company is forecasting 44.4% year-over-year growth in the next quarter, and analysts agree, predicting 37.2% growth over the next 12 months.
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Product demand and inventory
Days in inventory turnover (DIO) is an important metric for semiconductor manufacturers because it reflects a company’s capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to stabilize, allowing semiconductor manufacturers to exert pricing power. A steadily increasing DIO can be a warning sign of weak demand, and if inventories continue to rise, it could mean that a company will have to scale back production.
Seagate Technology’s inventory turnover period
For the quarter, Seagate Technology’s DIO was 88, 20 days above its five-year average, suggesting the company’s inventory levels are higher than in the past.
Seagate Technology’s second quarter earnings highlights
I was impressed with Seagate Technology’s strong gross margin improvement this quarter. I was also impressed that the company’s EPS beat Wall Street expectations. Next quarter’s revenue guidance also beat expectations, which was a big plus. Looking at the big picture, I think this was a great quarter for shareholders to be happy about. Immediately following the announcement, the stock price rose 5.7% to $111.25.
Seagate Technology may have had a strong quarter, but does that mean you should invest in it now? When making an investment decision, it’s important to consider the company’s valuation, the quality of its business, and what happened in the most recent quarter. We cover that in our complete, actionable research report, which you can read for free here.