Please ensure Javascript is enabled for purposes of website accessibility

Ambarella Earnings: Taking Down GoPro in the Process

By Rick Munarriz - Sep 1, 2015 at 7:08PM

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 high-def video chip solutions provider delivers better-than-expected financials results, but a weak outlook on wearable camera chips sinks two market darlings.

Source: Ambarella.   

Shares of Ambarella (AMBA -3.31%) moved lower on Tuesday night after posting mixed quarterly results. The provider of video compression and image processing semiconductors posted better-than-expected results for its fiscal second quarter, but any of the bounce the beat would have provided was quickly reversed after the market digested Ambarella's lukewarm guidance.

Revenue soared 79% to $84.2 million, well ahead of the $81.7 million that analysts were expecting. This is the fifth quarter in a row where year-over-year growth has accelerated, according to S&P Capital IQ data, an impressive feat in the often volatile semiconductor market. 

The popularity of Ambarella's video chips that help power GoPro (GPRO 0.54%) wearable cameras as well as surveillance gear, automotive dashboard recorders, and broadcast infrastructure encoders is undeniable. Ambarella was once seen as a piggyback play on GoPro's meteoric success, but it's Ambarella that's been growing faster lately. Ambarella's year-over-year surge was larger than GoPro's otherwise remarkable 71.7% pop on the top line during its most recent quarter. It's the second quarter in a row that we've seen that happen.

Ambarella's bottom-line performance was even better. Adjusted earnings soared 150% to hit $29.7 million, or $0.88 a share. Wall Street was holding out for a profit of just $0.80 a share, but it's hard to call that a surprise. This is the sixth consecutive quarter that Ambarella has beaten Wall Street's income estimates by a double-digit percentage margin. 

It's been quite the ride for a stock that was initially ignored by Wall Street, having to settle for an IPO at $6 a share in late 2012. Even with the recent sell-off -- the stock has shed nearly a third of its value since peaking two months ago -- it's still nearly a 15-bagger in less than three years. 

The stock initially moved higher on the report, but enthusiasm turning during the subsequent earnings call when Ambarella's CFO warned that revenue for the current quarter would come in short of Wall Street forecasts. Ambarella's performance is being held back by flat revenue in its wearable camera segment, something that's also weighing on shares of GoPro in Tuesday's after-market trading.

Ambarella's rich multiples -- the stock closed Tuesday at nearly 30 times this year's projected profitability and 25 times next fiscal year's target -- have made it vulnerable during its summertime swoon. Tuesday's problematic guidance isn't going to help, but Ambarella continues to grow faster than most tech stocks and with richer margins than most chip makers. We'll see if that's enough for a bounce following Tuesday night's post-earnings sell-off. 

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.
$63.29 (-3.31%) $-2.17
GoPro, Inc. Stock Quote
GoPro, Inc.
$5.56 (0.54%) $0.03

*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 analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

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

Premium Investing Services

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