ResMed's Q4 Earnings: A Blueprint for Long-Term Growth in Sleep and Respiratory Care

ResMed's Q4 2025 earnings report and broader five-year financial trajectory suggest it is more than a durable business—it is a compounding machine. With a 10% year-over-year revenue increase to $1.3 billion in Q4 and a full-year 2025 revenue of $5.1 billion, ResMed's growth is not just robust but structurally sound. Yet, the true test of its long-term sustainability lies in its ability to balance revenue momentum with margin discipline and cash flow generation. Historically, when ResMed has exceeded earnings expectations, as it did 7 times from 2022 to the present, the stock has shown a 57.14% win rate over 3 days, 42.86% over 10 days, and an average return of 0.75% in the 3-day period.

Revenue Growth: A Story of Market Leadership and Digital Innovation

ResMed's Q4 revenue growth was driven by two pillars: product demand and digital transformation. The company's sleep devices and masks portfolio saw strong performance, but the real standout was its Residential Care Software business, which benefits from a shift toward remote patient monitoring. This aligns with the broader healthcare industry's pivot to value-based care and home-based solutions.

Over the past five years, ResMed has delivered a 10.4% annualized revenue growth rate, outpacing industry averages. Its 2024 revenue of $4.7 billion reflects a 11% year-over-year increase, driven by expanding market share in sleep apnea treatments and respiratory care. The company's recent acquisition of VirtuOx, a diagnostics provider, further cements its role in the care continuum, enabling earlier intervention and reducing friction in patient pathways.

Margin Stability: Operational Excellence and Pricing Power

ResMed's Q4 gross margin expanded by 230 basis points to 60.8%, a testament to its procurement and logistics efficiencies. This margin improvement was not a one-off; the company has consistently tightened costs while maintaining pricing power. For 2024, gross margins hit 56.7%, up 90 basis points year-over-year, despite inflationary pressures.

The key to ResMed's margin stability lies in its vertical integration and digital health ecosystem. By controlling manufacturing and leveraging AI-driven analytics in platforms like myAir, ResMed reduces overhead while enhancing patient compliance. Higher adherence rates directly boost revenue per customer and lower churn. For instance, myAir users average 46 minutes more nightly use than non-users, translating to stronger recurring revenue.

Cash Flow Generation: Fueling Shareholder Returns and Innovation

ResMed's Q4 operating cash flow of $539 million—well above its $380 million net income—underscores its ability to convert revenue into liquidity. For 2024, operating cash flow hit $1.4 billion, a 232% increase over three years. This cash flow has funded a 13% dividend hike to $0.60 per share and $100 million in share repurchases, directly enhancing shareholder value.

The company's free cash flow has grown by 354% over three years, a critical metric for investors. Such robust cash generation allows ResMed to reinvest in innovation (e.g., AI-powered therapy personalization) and defend its market share against competitors like Inspire Medical Systems, which offers implantable alternatives to CPAP. While CPAP remains the gold standard for sleep apnea treatment, ResMed's digital-first approach creates a moat that is difficult to replicate.

Industry Dynamics: Growth, Competition, and Policy Risks

The global sleep therapy market is projected to grow at a 7.4% CAGR, reaching $8.9 billion by 2029. ResMed's 50-60% market share in obstructive sleep apnea (OSA) treatment positions it to capture a significant portion of this growth. However, challenges persist:
- Competition: Implantable devices and wearable tech (e.g., Apple Watch) could erode CPAP adoption among niche groups.
- Policy shifts: Medicare and Medicaid reimbursement models could impact HME providers' margins.
- Global currency volatility: While ResMed's Q4 results benefited from favorable FX, this is a double-edged sword.

ResMed's 2030 strategy—focused on AI, operational excellence, and digital health—directly addresses these risks. Its U-Sleep platform, which automates patient coaching, and partnerships with policymakers to expand access to care, demonstrate a proactive approach to sustainability.

Investment Thesis: A Buy for the Long-Term

ResMed's Q4 results affirm its position as a high-quality, cash-generative business with durable competitive advantages. Key metrics—10%+ revenue growth, expanding margins, and surge in operating cash flow—suggest it is not just riding a wave of demand but building a fortress around its market leadership.

However, investors must weigh the company's premium valuation. At a price-to-free-cash-flow ratio of 25x (as of July 2025), RMD trades at a premium to the S&P 500. This premium is justified if ResMed continues to outperform on margins and innovation, but it requires patience. The company's 2030 goals—targeting 10% operating margin expansion and 15% revenue growth—could unlock further upside.

Conclusion: A Pillar in a Fragmented Market

ResMed's Q4 earnings and long-term financial trajectory paint a picture of a company that is both a market leader and a disciplined operator. While competition and regulatory headwinds exist, its focus on digital health, AI, and patient-centric solutions creates a flywheel effect: higher compliance, recurring revenue, and margin expansion. For investors seeking a long-term holding in the healthcare sector, ResMed offers a compelling blend of growth and stability—provided they are comfortable with its current valuation.

In the evolving landscape of sleep and respiratory care, ResMed is not just surviving; it is redefining the rules of the game.
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