Broadcom Issues Strong Guidance, Announces Stock Split

Image: Broadcom’s shares have done quite well in the past couple of years. We liked its fiscal second quarter results and outlook.

By Brian Nelson, CFA

On June 12, Broadcom (AVGO) reported second quarter fiscal 2024 results for the period ended May 5. The company beat revenue on both the top and bottom lines in the quarter. Revenue increased 43% from the year-ago period, while adjusted EBITDA increased from $5.7 billion to $7.4 billion in the quarter (59% of total revenue), making for some continued strong levels of profitability. Non-GAAP diluted earnings per share were $10.96 in the fiscal second quarter, up from $10.32 in the same quarter a year ago.

Management’s commentary was positive in the press release:

Broadcom’s second quarter results were once again driven by AI demand and VMware. Revenue from our AI products was a record $3.1 billion during the quarter. Infrastructure software revenue accelerated as more enterprises adopted the VMware software stack to build their own private clouds. We are raising our fiscal year 2024 guidance for consolidated revenue to $51 billion and adjusted EBITDA to 61% of revenue.

Consolidated revenue grew 43% year-over-year to $12.5 billion, including the contribution from VMware, and was up 12% year-over-year, excluding VMware. Adjusted EBITDA increased 31% year-over-year to $7.4 billion. Free cash flow, excluding restructuring and integration in the quarter, was $5.3 billion, up 18% year-over-year. Today we are announcing a ten-for-one forward stock split of Broadcom’s common stock, to make ownership of Broadcom stock more accessible to investors and employees.

Cash flow from operations in the quarter was $4.58 billion, up from $4.5 billion in the year-ago quarter, while traditional GAAP free cash flow was $4.45 billion, up from $4.38 billion in the second quarter of fiscal 2023. Looking ahead, management is targeting fiscal 2024 annual revenue guidance of ~$51 billion, better than the consensus forecast and up 42% from last year, while adjusted EBITDA guidance for the year is expected at 61% of revenue, or $31.1 billion. 

The company also announced a 10-for-1 stock split, effective July 15, 2024. Broadcom ended the quarter with $74 billion in short- and long-term debt and $9.8 billion in cash and cash equivalents. Broadcom’s fiscal second quarter results were fantastic, and its levels of profitability are a sight to see. We like the momentum behind its operations, its forward-looking guidance, as well as its free cash flow generating capacity. Shares yield ~1.4% at the time of this writing.

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