Ambarella Inc. (NASDAQ:AMBA) announced solid fiscal second-quarter 2019 results on Thursday after the market closed, detailing a performance largely in line with the low bar it set in June. But the video-processing chip leader also followed with surprisingly low forward revenue guidance, leaving shares down big in after-hours trading as of this writing.

Put simply, with immaterial revenue from GoPro -- which was formerly its single largest customer -- and modest overall declines from its other supplementary markets, Ambarella finds itself eagerly awaiting more significant contributions from its early bets on new computer-vision chips. 

Ambarella chips

Image source: Ambarella.

In the meantime, let's take a closer look at what Ambarella accomplished this quarter, and what investors can expect going forward.

Ambarella results: The raw numbers

Metric

Fiscal Q2 2019*

Fiscal Q2 2018

Growth (YOY)

Revenue

$62.5 million

$71.6 million

(12.8%)

GAAP net income (loss)

($6.9 million)

$3.3 million

N/A

GAAP earnings (loss) per share

($0.21)

$0.10

N/A

DATA SOURCE: AMBARELLA. *FOR THE QUARTER ENDED JULY 31, 2018. YOY = year over year.

What happened with Ambarella this quarter?

  • Revenue was in line with Ambarella's most recent guidance, which called for between $60 million and $64 million. 
  • Adjusted for stock-based compensation, Ambarella generated non-GAAP net income of $8.5 million, or $0.25 per share, down from $19.3 million, or $0.56 per share in last year's second quarter, but well above consensus estimates for $0.13 per share. 
  • Adjusted gross margin declined 1.6 percentage points year over year to 61.4%, but it arrived above the high end of guidance for between 59% and 61%.
  • Ambarella repurchased 1,119,193 shares for $45 million this quarter, leaving $66.1 million remaining under its current repurchase authorization (which is good through June 5, 2019).

What management had to say

Ambarella CEO Fermi Wang stated:

While we are disappointed with our near term outlook, we remain confident that our decision to focus on computer vision applications in the IP security, automotive and robotics AI markets is the correct strategy and is already bearing fruit. We have delivered our CV22 and CV2 computer vision chips to customers, and their evaluation results are very encouraging. We believe our excellent neural network processing performance combined with the low power of our solutions gives us a strong competitive position in our target markets. Moreover, we continue to expand our computer vision product family to deliver solutions that more fully address the growing market opportunity.

Looking forward 

More specifically on that disappointing outlook, Ambarella anticipates fiscal third-quarter revenue of between $55.5 million and $58.5 million, the midpoint of which represents a steep 36% decline from revenue of $89.1 million in the same year-ago period. Ambarella also called for adjusted gross margin to fall to between 59% and 60.5%.

By comparison -- and though we don't usually pay close attention to Wall Street's demands -- most analysts were expecting a more modest top-line decline, with consensus estimates calling for fiscal Q3 revenue of $73.5 million.

In the end, Ambarella is understandably focusing on the vast potential for its new computer-vision chips to return the company to sustained, profitable growth over the long term. But as I wrote when investors endured a similarly negative reaction to Ambarella's equally underwhelming short-term outlook last quarter, the market wants to see that growth begin to materialize before the stock will turn for the better.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ambarella and GoPro. The Motley Fool has a disclosure policy.