Why didn’t Sandisk’s revenue growth produce a higher gross margin?

  • Sandisk’s first fiscal-quarter revenue was $11.03 billion, up 23% sequentially and above Wall Street’s expectation of $10.74 billion. Data center revenue rose 61% sequentially to $4.8 billion, above the market expectation of $4 billion, and accounted for 43.5% of total revenue; edge and consumer revenue both fell short of expectations.
  • About six-tenths of the sequential revenue increase came from shipments and four-tenths from price; the report estimates that prices rose about 8.6%, below Wall Street’s expectation of 11.1%. Greater reliance on shipments explains why gross margin rose only slightly sequentially: it was 85.07%, above the market expectation of 84.45% but below the 85.5%–86.5% threshold expected by bulls.
  • Second fiscal-quarter revenue guidance is $12.2 billion–$12.6 billion, with the midpoint of $12.4 billion above the market expectation of $12.08 billion; the gross-margin guidance midpoint of 85% is broadly unchanged from the first fiscal quarter and below the 86.5%–87.5% expected by bulls. The report notes that some revenue growth comes from seasonality in the consumer business, not entirely from price increases.

What constraints affect Sandisk’s long-term agreements and cash flow?

  • No new long-term agreements were signed, leaving the customer count at 8, below bullish expectations; the minimum guaranteed value of the agreements was $93.9 billion, and remaining performance obligations were $88.9 billion, below the $91.1 billion on an August pro forma basis.
  • Shipments covered by the agreements account for about half of fiscal 2027 and two-thirds of fiscal 2028, unchanged proportions. The company said it is actively discussing renewals and new agreements, and potential demand exceeds its supply capacity through the end of the decade.
  • First fiscal-quarter adjusted free cash flow was $5.7 billion, below the market expectation of $5.93 billion; free cash flow on the report’s basis was $6.31 billion, and accounts receivable rose $1.88 billion.

Where did Reddit’s user losses begin?

  • Third-quarter US daily active users fell to 50.7 million, down 2.5 million sequentially and 2% year over year, below Wall Street’s expectation of 53.5 million; the sequential decline in the preceding quarter was only 300 thousand.
  • The company said search referrals fell markedly in the third quarter and the decline accelerated late in the quarter, mainly affecting logged-out web traffic; search is also a route for existing users to return, so logged-in users and app traffic are also affected to some extent. In October, search referrals fell by an average of more than 1 million per week.
  • If that pace of decline continues, the company expects total daily active users in the fourth quarter could fall by a low-double-digit percentage from the current approximately 130 million. Meanwhile, logged-in users and app daily active users grew sequentially, and they contributed more than 80% of monetization.

How is user pressure reflected in Reddit’s revenue and costs?

  • Third-quarter revenue was $895 million, up 53% year over year and above Wall Street’s expectation of $877 million, but below the higher expectation threshold of $935 million–$945 million; growth also slowed from 61% in the second quarter.
  • Fourth-quarter revenue guidance is $1 billion–$1.03 billion, with the midpoint up 39.9% year over year and below the market expectation of $1.044 billion. According to the report’s calculations, even if actual revenue exceeds the guidance midpoint by $30 million, the same amount as in the third quarter, it would only roughly meet market expectations.
  • Third-quarter adjusted EBITDA margin was 44.9%, up 4.6 percentage points year over year but below the market expectation of 45.6%. Sales and marketing expenses rose 63% year over year, faster than revenue; the company said user marketing helped offset the impact of declining search traffic.