Arm Q4 results: Why this analyst isn't surprised by the forecast

Shares of Arm Holdings (ARM) are falling Wednesday despite surpassing expectations on both the top and bottom lines in its fourth quarter results. To shed light on this unexpected market reaction, New Street Research Analyst Rolf Bulk joins Yahoo Finance.

Bulk acknowledges that while Arm had a solid quarter, the company's full-year guidance came in "a bit shy of consensus." However, he says he is not surprised by Arm's outlook, citing certain parts of the business, such as "licensing in particular is quite lumpy."

Bulk attributes this guidance to Arm's inability to determine which clients will continue to purchase their products consistently. He adds that clients who purchase from the company this quarter are not guaranteed to do so in the next, making it difficult to "forecast that out over multi-quarters, let alone a year."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance.

This post was written by Angel Smith

Editor's note: This post was updated to reflect the accurate quarter results

Video transcript

Moving on shares of arms sliding here despite delivering a beat on the top and bottom line.Ralph Book, New Street Research Equity Research analyst.Joining us here to discuss So Ralph, uh, arm reports investors clearly disappointed, at least initially.Here, in the in the after hours.Give us your take.What?What's pressuring the stock in the after hours?Ralph?Yeah, thanks for thanks for having me.Look, The quarter itself was not a bad print, actually.The beat the beat on revenue driven mostly by very strong licencing activity, um, royalties, which is a rather revenue stream that was also a beat.But their yearly guide So for fiscal 2025 came in a bit like 22% growth, which is not bad.Um, also in a fairly broad range 18 to 27% growth is what there is, what the guide indicates, and that's a bit shy of, uh, of consensus who model 26% growth.So towards the very high end of what arm thinks is feasible now to us, it's not a surprise that a guide within such a such a wide range that really reflects that part of arms business licencing in particular is quite lumpy, so the variability there on a quarter to quarter basis is very high.So the quarter itself is not necessarily a bad one, but a bit light towards what the market was expecting in terms of the guide.And why do you think there is that?I mean, you talked about the sort of lumpiness, if you will, what is causing that in the company's business?So the way you should think about arm is that they have this business of of selling their IP and, um, subsequently chip manufacturers using that IP to to, um to design their chips.Now that initial part of the of the process of selling that IP You know, um, a big client might might buy your your designs one particular quarter, but not the next one.And to forecast that out over a multi quarter, let alone a year is very difficult even for arm who, of course, have the best visibility out there.So that's that is simply inherent to the business that, uh, that they have, and perhaps not fully appreciated by the market, that this is a business with a lot of variability.Um, when it comes to quarterly revenue streams