Why Synaptics Stock Tumbled 21% in August

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What happened

Shares of Synaptics (NASDAQ: SYNA) slumped 21% in August, according to data provided by S&P Global Market Intelligence. The company's fiscal fourth-quarter report was the main driver of the decline. While Synaptics' results were roughly in line with analyst estimates, the company's guidance fell well short of expectations.

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So what

Synaptics reported fourth-quarter revenue of $426.5 million, up 32% year over year and in line with the average analyst estimate. Non-GAAP earnings per share came in at $1.18, up from $0.46 in the prior-year period and $0.02 higher than analysts expected.

While revenue growth was robust in the fourth quarter, full-year revenue grew by just 3%. The company pointed to touch- and display-driver integration and fingerprint solutions as areas of strength, partially offset by weakness in the discrete-display-driver business.

While Synaptics met expectations during the fourth quarter, its first-quarter guidance left a lot to be desired. The company expects revenue between $380 million and $420 million, compared to $386 million during the first quarter of last year, and well below analyst expectations of $445 million. Synaptics CFO Wajid Ali explained that this guidance reflects a sequential decline in the mobile business, as well as the company's current backlog and bookings so far during the first quarter.

Now what

Synaptics expects to grow revenue by a low-single-digit percentage in fiscal 2018, with growth skewed toward the second half, which is expected to include new product launches and the growth of the company's Internet of Things business. But this guidance includes the impact of acquisitions.

In June, Synaptics agreed to pay $300 million in cash and 726 thousand shares of its stock for Conexant Systems, a company that produced $104 million of revenue during fiscal 2016. The $95 million acquisition of Marvell Technology's multimedia-solutions business was announced at the same time, adding another $94 million of annual revenue.

Synaptics' full-year guidance implies that its revenue would slump if not for these acquisitions. This weak guidance overshadowed an otherwise solid earnings report, leading to steep decline in the stock.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.