Ambarella Inc (AMBA) Perform Rating Reaffirmed at Oppenheimer Following Q3 Results

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Uncertainties in multiple end markets will cloud visibility before new growth opportunities come in, according to the analyst

Ambarella Inc. (NASDAQ:AMBA) reported its financial results for the third quarter of fiscal year2017 (3QFY17) after the closing bell on December 1. Oppenheimer analyst Andrew Uerkwitz maintained a Perform rating as AMBA managed to surpass analysts’ expectations for the quarter. However, the stock plunged more than 11% during Friday’s trading session owing to the weak 4Q guidance.

Ambarella posted earnings per share (EPS) of $1.11 against revenue of $100.5 million. In comparison, analysts and Oppenheimer’s EPS estimate stood at $0.94 and $0.91, respectively. Moreover, the consensus and the firm’s revenue estimates were $100.5 million and $93.2 million, respectively. The research firm also noted that the revenues were up about 8% on a year-over-year (YoY) basis and 54% on a quarter-over-quarter (QoQ) basis. Increase in revenues reflected strong rebound in wearables division.

Mr. Uerkwitz believes that wearable revenues recovered owing to GoPro’s financial releases into the holiday quarter. The company reported about 35% YoY growth in unit sales during Black Friday week. Moreover, GPRO management remained confident over the camera drone market. It further stated that the weaker results in the segment marked short-term yield issues rather than declining consumer appetite.

Andrew also observed unchanged dynamics for the IP camera market. He believes North American consumers exhibited strong momentum. However, Chinese market demonstrated high uncertainty due to the state’s spending on security cameras.

However, the company guided 4Q earnings well below expectations. Uerkwitz commented, “Quarterly revenue exceeded the $100M mark for the first time, but management cut celebrations short with a cautious near-term outlook on the drone and wearables markets.”

He further added that AMBA’s management believes weakness in drone market is short-lived. However, it‘s too early to be optimistic on the wearables market. Consequently, the analyst and his team remain cautious going into FY18. He believes that uncertainties in numerous end markets will make visibility unclear before the company’s new computer vision chips bring in growth opportunities.

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