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What: Shares of Rambus were trading 12% higher as if 12:30 p.m. Tuesday after the company published a first-quarter earnings report Monday evening that showed better-than-expected profitability.
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So what: Rambus' revenuefell 7% year-over-year to reach $72.9 million for the quarter. Adjusted earnings fell 13% year-over-year to $17 million, resulting in adjusted earnings of $0.14 per share as compared to the year-ago quarter's $0.17 result. However, Wall Street had expected Rambus to generate $72.9 million in revenue and earn only $0.06 per share, so the company's report was better-than-expected, on balance. This outperformance is somewhat undermined by Rambus' second-quarter revenue guidance range of $70 million to $74 million, which is weaker than the $75.1 million analysts had expected, even at the high end of the range.
Now what: Investors appear willing to overlook Rambus' underwhelming top-line guidance in favor of a solid bottom line today. This has been a trend in recent quarters, as Rambus' trailing-12-month EPS has risen every quarter since the start of 2013, while its trailing-12-month revenuehas now been in decline for three consecutive quarters.
Improving profitability is always welcome, but Rambus will have to start producing top-line growth as well to continue funding the R&D it needs to stay ahead of the frenetic technological patent battles that have fueled its growth thus far. Rambus' trailing-12-month R&D expense is now 20% smallerthan it was at the end of 2012, which might be a worrying trend for investors banking on the company's continued ability to innovate. I'd dig deeper into Rambus' key licensing opportunities for the coming year before deciding that this minor earnings beat is really a major buying opportunity.
The article Why Rambus Inc. Shares Roared Today originally appeared on Fool.com.
Alex Planes has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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