NVIDIA CEO: Gaming Business Has 3 Key Growth Drivers (1 Might Surprise You)
NVIDIA (NASDAQ: NVDA) turned in strong third-quarter 2018 results earlier this month. The graphics-chip specialist's revenue jumped 32%, GAAP earnings per share soared 60%, and adjusted earnings per share (EPS) surged 41%.
A wealth of information about the company's performance and future prospects was covered on the earnings call. One of the best gems was CEO Jensen Huang's outlining of gaming's three key growth drivers, which are listed below.
Gaming is ultraimportant because it's NVIDIA's largest business, by far, accounting for 59.1% of total revenue in Q3, with revenue leaping 25% year over year in the quarter. Data center accounted for 19% of revenue, professional visualization for 7.2%, OEM and IP (original equipment manufacturers and intellectual property) for 9.1%, and auto for 5.5%.
1. Soaring popularity of esports
From Huang's remarks:
For those not familiar, esports generally refers to multiplayer video game competitions, particularly between professional players. Similar to traditional professional sports, tournaments for esports have sprung up, which are broadcast live and provide prize money. NVIDIA CFO Colette Kress shared some amazing esports stats earlier this year on the Q1 call:
- NVIDIA's GeForce was the graphics platform of choice at all of the top esports tournaments, including the finals of the Big 4 international competitions.
- Esports is now as popular among U.S. male millennials as America's favorite pastime, baseball.
- More people watch gaming than HBO, Netflix, ESPN, and Hulu combined.
That last stat blows me away, given Netflix's humongous reach. As for the second item, millennial males are a very desirable demographic for marketers, since this group is huge in size and young, so they have potentially many years of being a customer ahead.
2. Increasing quality of video game content
From Huang's remarks:
Huang said that quality of video games from the top companies is increasingly improving, so it makes sense that more people around the world are getting into gaming. Naturally, many of those people want to be able to enjoy the video games to their fullest, so they're purchasing what they consider to be the best graphics cards -- NVIDIA's GeForce cards.
NVIDIA has the top market position in discrete graphics processing units (GPUs) for gaming, with rival Advanced Micro Devices lagging behind. In Q3, NVIDIA commanded 70.9% share for discrete GPUs for desktops versus AMD's 29.1%. NVIDIA gained ground from Q2, when it held a 70% share, according to Jon Peddie Research. The size of the market -- technically called the "add-in board" market -- increased 38.2% from Q2.
3. Sharing of video game experiences
From Huang's remarks:
This growth driver might surprise many nongamers. The good news for NVIDIA investors is that they're profiting from this sharing culture, which is particularly strong among the young -- and not just with respect to the company's gaming business. On Q2's earnings call, Huang said that the company views video transcoding as an emerging application for its GPUs in its data-center business.
This process enables people to share their videos with a larger audience. It involves taking compressed (or encoded) content, decompressing it, changing the format, and then recompressing it.
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Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard, Netflix, and Nvidia. The Motley Fool has a disclosure policy.