STX Earnings Digest | Great Results, Falling Stock – Why?
$Seagate Technology PLC(STX)$ , the hard drive giant, reported an extraordinary performance in the Q1 2025 financial report, with revenue and profit surpassing analyst expectations. Despite this, the stock price plummeted by 5% in after-hours trading.
Surpassing Expectations
Seagate's Q1 2025 revenue soared to $21.68 billion, marking a remarkable 49% year-over-year growth, exceeding the expected $21.3 billion.
The adjusted gross margin came in at 33.3%, surpassing the anticipated 32% and setting a 10-year record.
Adjusted net profit stood at $337 million, outstripping the predicted $308 million and reversing the year-over-year loss.
Segments Breakdown
Seagate primarily focuses on data storage solutions, offering HDDs, SSDs, and data storage management software. Its products are widely used in personal computers, enterprise storage, cloud storage and data centers.
The revenue was predominantly driven by HDDs, contributing a substantial $20 billion, accounting for 86% of the total revenue.
However, other sectors such as systems and SSDs contributed a smaller proportion, with a mere $1.6 billion, representing less than 8% of the total revenue.
The surging demand for AI due to the emergence of ChatGPT and the expansion of data centers by major cloud providers have spurred the demand for large storage HDD products, with high-capacity storage contributing $17.3 billion, a staggering 87% of HDD revenue and a 70% year-over-year surge.
Nevertheless, traditional legacy revenue experienced a lackluster performance, amounting to only $2.7 billion, marking a 3% decline.
The cloud providers have been pivotal in driving Seagate's explosive performance.
Future Outlook
Looking ahead, Seagate anticipates Q2 2025 revenue to land between $21.5 billion and $24.5 billion. Analysts expect $22.8 billion, slightly above the midpoint.
Additionally, adjusted earnings per share are estimated to range between $1.65 and $2.05, surpassing the projected $1.70. Seagate foresees continuous improvement in gross margin and operating profit margin.
For the full fiscal year of 2025, management anticipates significant growth potential. Following the financial report, four analysts provided ratings, with three suggesting buy or outperform and just one taking a bearish stance.
Despite the overall stellar performance, the after-hours stock price downturn could be attributed to profit-taking near historical highs, with market expectations already priced in.
On a comparative note, Seagate's market response differed significantly from that of $Texas Instruments(TXN)$ , another industry leader in the semiconductor sector. Texas Instruments, despite an unimpressive financial report with eight consecutive quarters of declining revenue, saw a 4% uptick in its stock price.
This was driven by the anticipation of a narrowing downtrend and a potential rebound in new orders, making it an attractive buy in the context of its modest valuation. Conversely, Seagate, having set high expectations, faced challenges in generating significant market momentum with only a marginal beat on predictions.
Overall, Seagate's Q1 2025 performance has surpassed expectations and provided an optimistic outlook, but market reactions reflect the challenges of meeting already inflated expectations.
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