Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

After An Ugly 2018, Ambarella Is Getting Some Reprieve… For Now

By Nicholas Rossolillo - Updated Apr 11, 2019 at 4:56PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The chipmaker fared better than expected in its fiscal 2019 fourth quarter.

Shares of video processing and computer vision chip maker Ambarella ( AMBA 22.02% ) rallied after the company reported results for its fiscal year 2019 fourth quarter (the year ended January 31, 2019). The stock's rise should give long-suffering shareholders reason to breathe a little easier after a bruising year. Shares were down 25% from the beginning of 2018 through the day of the report on March 5, 2019.

However, though results were better than expected, Ambarella isn't out of the woods yet. New computer vision chips that could open up new sources of revenue won't start yielding meaningful results for a while, and in the meantime older segments are still in decline. I, for one, am not a buyer yet.

Check out the latest earnings call transcript for Ambarella.

An ugly year by the numbers

The good news is that the security camera and automotive markets both grew for Ambarella last year in the mid-single-digits, the former accounting for about 50% of sales and the latter about 20%. The problem? The remaining portion of the business, consumer electronics, fell so far that it more than offset the growth in security cameras and autos.

Metric

12 Months Ended January 31, 2019

12 Months Ended January 31, 2018

YOY Change

Revenue

$227.8 million

$295.4 million

(23%)

Gross profit margin

60.7%

63.6%

(2.9 p.p.)

Operating expenses

$178.6 million

$163.3 million

9%

Earnings (loss) per share

($0.93)

$0.55

N/A

Adjusted earnings (loss) per share

$0.73

$2.32

(69%)

YOY = year over year. P.p. = percentage point. Data source: Ambarella.

The resulting fall in sales hurt profit margins on product sold, and contributed to a steeper decline in earnings -- even when adjusting for stock-based compensation and one-time items. Another factor that contributed to the evaporating bottom line were operating expenses, which continued to rise even as sales fell. Most of the increase in operating expense was related to an 11% jump in research and development spending as Ambarella tried to rapidly introduce new computer vision chips for commercial and industrial use.

A close-up of a camera aperture opening.

Image source: Getty Images.

Credit where credit is due

Rollout and adoption of those new computer vision chips has been slow, and it looks like it could still be a while before they start contributing to results -- let alone put Ambarella back in growth mode. However, Abarella thinks that its business in cameras and cars will continue to chug higher and stop the bleeding. In putting its money where its mouth is, the company is still repurchasing its own shares -- $3.5 million worth in the fourth quarter alone.

Look for a potential rebound to happen later in 2019, though. For the first quarter of the new year, Ambarella's outlook still isn't warm and fuzzy. Management called for revenue of $47.0 million, plus or minus 3%, and gross profit margin of 59% to 60%. Adjusted operating expenses are expected to come in at $30.5 to $32.5 million. That compares to revenue of $56.9 million, gross margin of 61.3%, and adjusted expenses of $30.6 million in the comparable period a year ago.

Thus, it looks like the business is still stuck in a slide from top to bottom. Ambarella is making good progress on its computer vision chips, but weakness elsewhere is keeping full-blown hope and optimism in check. I'm still not quite ready to pull the trigger here.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Ambarella, Inc. Stock Quote
Ambarella, Inc.
AMBA
$219.05 (22.02%) $39.53

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
656%
 
S&P 500 Returns
144%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.