Why Is Synopsys (SNPS) Down 6.3% Since Last Earnings Report?

A month has gone by since the last earnings report for Synopsys (SNPS). Shares have lost about 6.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Synopsys due for a breakout? 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 important catalysts.

Synopsys Q4 Earnings and Revenues Beat Estimates

Synopsys delivered better-than-expected fourth-quarter fiscal 2024 results. The company reported non-GAAP earnings of $3.40 per share for the fourth quarter, exceeding the Zacks Consensus Estimate of $3.29 and the guided range of $3.27-$3.32. Furthermore, the bottom line increased by 13%, driven by higher revenues and effective cost management.

Synopsys’ fourth-quarter revenues jumped 12% year over year to $1.64 billion, which marginally surpassed the Zacks Consensus Estimate of $1.63 billion. The top line was driven by notable growth across multiple business segments.

Synopsys’ Fourth-Quarter Details

In the license-type revenue group, Time-Based Product revenues (51% of the total revenues) of $834.4 million were up by 6.9% year over year. Upfront Product revenues (31.8%) moved upward by 18% to $520.9 million. Maintenance and Service revenues (17.2%) increased 14.5% to $280.7 million from the year-ago quarter’s $245.2 million.

Segment-wise, Electronic Design Automation (EDA) revenues (65.6% of revenues) were $1.07 billion, up 15.2% year over year. Design IP revenues (31.7% of revenues) amounted to $517.8 million, slightly up from the year-ago quarter’s $513.7 million. Other revenues, which were $45.2 million, represented 2.7% of the total revenues, increasing a whopping 102.7% year over year.

Geographically, Synopsys’ revenues in North America (45% of the total) and Europe (11%) were $738.5 million and $185.2 million, respectively. Revenues from Korea (12%), China (16%) and Other (15%) were $203.5 million, $259.9 million and $248.9 million, respectively.

The non-GAAP operating margin was 36.9%, contracting 40 basis points (bps) year over year.

Synopsys’ EDA’s adjusted operating margin showed a massive improvement of 440 bps to 37%. The Design IP segment’s margin reduced drastically from 46% to 36.7% on a year-over-year basis.

Synopsys’ FY 2024 Performance in Brief

Revenues for fiscal year 2024 were $6.127 billion, an increase of approximately 15% from $5.32 billion in fiscal year 2023.

The non-GAAP operating margin was 38.5% for fiscal year 2024, expanding 220 compared to the previous year’s reported figure.

Non-GAAP net income for fiscal year 2024 was $2.058 billion, or $13.20 per share, compared to non-GAAP net income of $1.636 billion, or $10.54 per share, for fiscal year 2023.

Synopsys’ Balance Sheet & Cash Flow

Synopsys had cash and short-term investments of $4.05 billion as of Oct. 31, 2024, compared with $1.99 billion as of July 31, 2024.

The total long-term debt was $16 million at the end of the reported quarter, marginally higher than the $15.6 million reported in the previous quarter.

The company’s cash flow from operating activities, including discontinued operations, was $563 million for the reported quarter compared with the year-ago quarter’s cash flow of $326 million.

The company’s cash flow from operating activities, including discontinued operations, was $1.41 billion for the fiscal year 2024, lower than the previous year’s cash flow of $1.70 billion.

SNPS Initiates Guidance for Q1 and FY 2025

For fiscal 2025, SNPS expects revenues between $6.745 billion and $6.805 billion. Non-GAAP earnings are expected in the range of $14.88-$14.96. Non-GAAP expenses are expected in the range of $4.045-$4.085 billion.

For the first quarter of fiscal 2025, Synopsys expects revenues between $1.435 billion and $1.465 billion. Management estimates non-GAAP EPS between $2.77 and $2.82. Non-GAAP expenses are anticipated in the band of $945-$955 million.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

The consensus estimate has shifted -30.26% due to these changes.

VGM Scores

At this time, Synopsys has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Synopsys has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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