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Why Ambarella Inc. Stock Fell 17.1% in June

By Steve Symington - Updated Jul 3, 2017 at 8:49PM

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The market was less than impressed with the video-processing chip specialist's second-quarter guidance. Here's what investors need to know.

What happened

Shares of Ambarella Inc. (AMBA -0.73%) declined 17.1% in the month of June, according to data provided by S&P Global Market Intelligence, after the video-processing chipmaker offered disappointing guidance with its latest quarterly report.

So what

Ambarella shares fell more than 10% on June 7, 2017, alone following its official announcement, then drifted lower over the next several days before leveling off around its current share price.

Ambarella flying SoCs

IMAGE SOURCE: AMBARELLA INC.

That's not to say Ambarella's actual first-quarter results were bad. Revenue climbed 12.2% year over year to $64.1 million, and adjusted net income per share rose 14.7% to $0.39. Both the top and bottom lines were near the high ends of Ambarella's guidance provided three months earlier. And management gave credit to strength in the markets for IP security cameras, wearables outside of GoPro (where high inventories continue to hold back growth), and automotive.

However, Ambarella management also told investors that sales into the drone market will almost certainly drop going forward given headwinds at certain tier 2 customers and the timing of product launches last year. 

Now what

Ambarella expects revenue in its fiscal second quarter to climb between 6% and 10.6% year over year. Analysts, on average, were looking for revenue growth of slightly above the high end of that range. 

At the same time, CEO Fermi Wang also lauded their investments in computer vision systems-on-chips in support of customers' planned advanced video cameras. Coming video with computer vision technology, according to Wang, "will be the real driver of new opportunities in both our current markets as well as emerging markets such as OEM automotive and robotics."

So while Ambarella's near-term growth outlook didn't exactly live up to Wall Street's expectations, and putting aside its challenges in the drone space, it appears the company's long-term story remains intact.

Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Ambarella and GoPro. The Motley Fool has the following options: short January 2019 $12 calls on GoPro and long January 2019 $12 puts on GoPro. The Motley Fool has a disclosure policy.

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