Universal Display (OLED) is trading sharply higher today (+18%) after reporting Q1 results that were well above market expectations. Since you may not be familiar with universal Display, a little background would help. Universal Display specializes in what's known as organic light emitting diode (OLED) technology for the display and lighting industries. Universal Display licenses its technology to makers of TVs and consumer electronic devices. OLED technology produces a much higher quality picture than LCDs. It also allows for vibrant colors, thinner screens and less power consumption.
OLED is seeing tremendous customer product road map activity in the pipeline for new emitters, the highest level of activity OLED has seen in its 20+ year history. OLED technology has been talked about for years, but 2017 seems it could be the turning point for in terms of mass adoption. There has been a proliferation of OLED products, including laptops, OLED wearables such as the Apple Watch Series 2, new smartphones including new Galaxy, Samsung Galaxy A, C, J and S models, new virtual reality and augmented reality OLED headsets, and new OLED TVs.
The expanding breadth of bright, beautiful, thin OLED product is captivating the consumer market. The iPhone 8 is rumored it will have an OLED display when it gets unveiled later in 2017. In addition to the mainstream consumer market, the company is also seeing growing interest from the automotive market, not just for OLED lighting applications like tail lights, interior lighting and indicator lights, but also for interior displays.
Turning to the Q1 results, EPS jumped 450% YoY to $0.22 from $0.04 in the prior year period. That $0.22 result was much better than expected as the market was looking for a small loss. Revenue rose 87% year/year to $55.6 mln, this was much better than market expectations. In terms of 2017 guidance, OLED raised its revenue outlook to $260-280 mln, up from prior guidance of $230-250 mln.
In terms of margins, OLED posted operating margin of 21.7%, up from 8.6% in the prior year period. Net margin improved to 18.7% from 6.6% last year. Those are some good margins and OLED sports much larger margins in other seasonally stronger quarters. A big reason they are so robust is that OLED is a licensor of its OLED technology to manufacturers. Licensing revenue is very high margin as you basically collect a royalty stream and you don't have any manufacturing costs.
The company says it's an exciting time for the OLED industry. It's encouraged by the momentum that it is seeing from customers as well as from the supply chain that supports the OLED ecosystem. With customers' mounting investments in new manufacturing capacity and the development of an array of new display and lighting products, OLED expects its growth trajectory to be positive for the foreseeable future.
In sum, as mentioned above, OLED technology has been talked about for years, but 2017 seems it could be the turning point for in terms of mass adoption. What stood out to us is a comment by management that it believes the OLED industry is poised to grow faster than earlier expectations this year. That's notable because they were very positive on their Q4 call in February and now it seems to have gotten even better.
In addition to earnings, investors are happy to see OLED finally starting paying a dividend for the first time ever (this was announced in February). At $0.03 per share, it's tiny, but it's more the sentiment. Management is throwing a bone to those investors who have been clamoring that OLED dish out some its huge cash balance back to shareholders. Specifically, OLED has roughly $325 mln in cash/investments, or $6.95 per share, with no long term debt. It's good to see some money getting returned. Another benefit to having a dividend is that some funds are limited to investing only in stocks that have a dividend so this opens the door for those funds to perhaps buy the stock.