Technology earnings first take: AMD and Arista issue strong guidance, while BKNG sees weaker travel demand

Why did AMD’s revenue surge while its gross margin declined?

Third-quarter revenue was $13.377 billion, up 44.7% year over year and above Wall Street’s $13.11 billion estimate. Data center revenue was $8.546 billion, up 96.9% year over year and $1.83 billion sequentially, accounting for 99% of the company’s sequential revenue increase; demand for EPYC processors and the launch of the MI450 series of GPUs were the main drivers.
Non-GAAP gross margin was 55.94%, below Wall Street’s 56.11% estimate and the company’s guidance of approximately 56%; however, gross profit was above expectations and operating expenses were lower than expected, bringing non-GAAP earnings per share to $2.09, above the $1.95 estimate.
The company guided fourth-quarter revenue to $17 billion, plus or minus 3%, with the midpoint above Wall Street’s $16.29 billion estimate; management expects growth to accelerate further as Helios and Venice ramp production. Gross margin guidance of approximately 55% is below the third-quarter level, and the report attributes the sequential decline to the MI450 rack product mix.
Third-quarter free cash flow fell to $554 million from $1.56 billion in the second quarter; inventories rose by $3 billion sequentially and accounts receivable increased by $1.9 billion, partly offset by a $2.3 billion increase in accounts payable. Client revenue fell 3.7% sequentially, also weaker than prior guidance for modest growth.

Third-quarter revenue was $3.658 billion, up 58.5% year over year and above Wall Street’s $3.33 billion estimate; product revenue growth of 66.9% year over year was the main driver. Fourth-quarter revenue guidance was $3.9 billion to $4 billion, with even the low end above Wall Street’s $3.6 billion estimate.
Third-quarter gross margin was 64.01%, above the 63.07% estimate; however, operating expenses as a share of revenue rose from approximately 13.5% in the second quarter to 14.9%, causing operating margin to decline sequentially from 49.86% to 49.10%.
Total deferred revenue fell $26 million sequentially to $6.84 billion, its first decline since the second quarter of 2023. The report notes that some of the revenue beat came from the conversion of deferred revenue; the company’s CFO previously said some deployments take 18 to 24 months to meet acceptance criteria, so deferred revenue should be assessed over a longer cycle.

Third-quarter revenue was $584.9 million, up 49.1% sequentially and above Wall Street’s $549.8 million estimate, but below the $590 million to $600 million expected range cited in the report. Mass production of Scorpio X series switches propelled Scorpio to become the company’s largest product family.
The midpoint of fourth-quarter revenue guidance was $740 million, above Wall Street’s $668 million estimate and at the low end of the range cited in the report. Gross margin guidance of approximately 72% exceeded Wall Street’s 71% estimate, but the operating expense guidance midpoint of $197 million was also above the $178 million estimate; the earnings-per-share guidance midpoint of $1.64 was below the $1.70 to $1.78 thresholds cited in the report.
Third-quarter gross margin was 72.43%, above Wall Street’s estimate but down from 73.7% in the second quarter; inventories grew 77% sequentially, faster than the 49% sequential increase in revenue.

Third-quarter room nights grew 6.7% year over year to 345 million, above Wall Street’s 5% estimate; adjusted revenue of $9.793 billion also exceeded the $9.558 billion estimate. An FTC matter reduced reported revenue by $900 million, leaving reported revenue at $8.89 billion, down 1% year over year.
For the fourth quarter, the company guided room-night growth of 1% to 3% year over year, below Wall Street’s 5.9% estimate; adjusted EBITDA is expected to be roughly flat, or approximately $2.2 billion by the report’s calculation, below the $2.42 billion estimate.
The company said international travel demand weakened at the end of the third quarter, while domestic travel remained resilient; demand in October was also affected by travel disruptions in the Middle East, higher airfares and localized unrest in some European cities. The guidance assumes the direct and indirect effects of the Middle East conflict on travel persist through year-end.

Third-quarter daily active users reached 64.9 million, up 28.5% year over year and above Wall Street’s 62.1 million estimate; the company attributed the growth to streak and notification experiments, as well as new and returning users from collaborations with two mobile games.
Third-quarter bookings grew 12.1% year over year to $316.1 million, above the $308.9 million estimate, but still grew more slowly than daily active users; according to the report’s calculation, bookings per daily active user fell 12.8% year over year. Paid subscribers grew 13.9% to 13.1 million, below the 13.24 million estimate; users on a 30-day free trial are excluded from paid subscribers.
The company’s fourth-quarter bookings guidance was $382 million, slightly above Wall Street’s $379.8 million estimate. Third-quarter adjusted EBITDA was $78.7 million, above the $76.4 million estimate, but its margin fell by approximately 4 percentage points year over year; this included a $11.4 million accrual for daily active user performance bonuses that had not previously been included in the outlook.