GoPro IPO and Google's Nest & Dropcam Deal Leave Ambarella Sitting Pretty

Google's Dropcam acquisition and GoPro's upcoming IPO make Ambarella a smart play.

Jun 23, 2014 at 12:17PM


Ambarella (NASDAQ:AMBA) seems to be hanging around the cool kids these days. Its two biggest clients -- wearable camera leader GoPro and surveillance camera speedster Dropcam -- are in the news right now, and Ambarella stands to be the welcome beneficiary in both cases.

Over the weekend we learned that Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) recently acquired Nest has hatched a buyout of its own. The company behind the high-tech learning thermostats is confirming the purchase of Dropcam that third party sources price as a $555 million deal.

Later this week we should have GoPro making its stock market debut. The shares are expected to price between $21 and $24 after Wednesday's market close and begin trading shortly after Thursday's trading session begins.

Both of these events should pay off nicely for Ambarella which is the provider of video compression and image processing semiconductors for GoPro and Dropcam products. GoPro's IPO should help increase awareness in its high-def wearable cameras that are popular with outdoor enthusiasts and video bloggers. Consumer-facing companies often see a bump in popularity after a prolific IPO. It even happened to Google.

As for Dropcam, having Google as a parent -- or grandparent -- company will clearly help expand the global possibilities for the trendy surveillance cams that play along nicely with smartphone apps to stream video. An acquisition sometimes opens the door to a potential supplier shift, but that's highly unlikely here. Late last year Google struck a deal with Ambarella to help power its Helpouts platform for video support. In other words, Google has already vetted Ambarella's video chips.

Ambarella is on a roll. It may not seem cheap at 25 times this fiscal year's profit forecast and 20 times next year's target, but it's growing quickly. History has also proven those estimates to be conservative as Ambarella has surpassed expectations by 19% or better over the past year. Analyst estimates also have yet to include the favorable impact that Google's ownership of Dropcam should have on sales. 

Along the way Ambarella will serve as a reasonably priced way to play GoPro's likely hot IPO, and diversification if the wearable camera maker slips or if growth slows. It will have Google doing the grunt work for its prospects to grow through Helpouts and Dropcam, and that's a good workhorse to have in your corner. Ambarella is in the right place at the right time -- at the right price.

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Rick Munarriz owns shares of Ambarella. The Motley Fool recommends Ambarella, Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Ambarella, Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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