Amba

Image source: Ambarella. 

There's still heady growth taking place at Ambarella (NASDAQ:AMBA), but the pace is slowing. The provider of video compression and image processing semiconductors reported quarterly results shortly after Thursday's market close. 

Revenue hit $93.2 million, up 42% since the prior year. Most companies would kill for that kind of growth, but it's actually Ambarella's weakest top-line spurt in more than a year according to S&P Capital IQ data.

It's going to get worse. Ambarella's guidance calls for just $65 million to $67.5 million in revenue for the current quarter. That's a sharp sequential slide; but even on a year-over-year basis, that's an unimpressive forecast of 4% growth at the high-end of that range. 

It's not hard to find the culprit. A big chunk of Ambarella's business is providing camera chips for GoPro (NASDAQ:GPRO), and GoPro itself had offered up lackluster guidance when it reported fresh financials five weeks ago. Ambarella's press release singles out "headwinds in the wearable sports market" that will impact revenue growth negatively in that business during the holiday quarter.

That's being more than offset by strength in its solutions for IP security cameras and automotive dashboards cams, as well as new markets that include flying cameras and home-security monitoring. 

The market's responding to the weak guidance in after-hours trading, but there are some positive morsels in the report as we work our way down the income statement. Gross margins improved to 65.7% for its fiscal third quarter, the highest that's been in more than three years. Earnings grew even faster than revenue, soaring 61%, to $29.5 million -- or $0.87 a share. Guidance, unfortunately, isn't as kind as we look out to Ambarella's fiscal fourth quarter as it pertains to both of those metrics.

Wall Street was mixed ahead of Ambarella's report, and not just because the stock has shed more than half of its value since peaking in June. Deutsche Bank lowered its price target on Tuesday, reducing its stock goal from $85 to $70. That may be higher than where the stock is hanging these days, but it's still unnerving to see an analyst talk down a stock just two days ahead of its quarterly report. 

On the other end of the spectrum, Stifel had actually put out an encouraging note on Monday. It reiterated its bullish rating, and its more aggressive $115 price target. Stifel's analyst feels that the sales can continue to grow at a 20% to 25% clip, even with the weakness in wearable cameras. He feels that security cameras can help lead the way to growth for now with auto-driving applications as a "driver" in the future.

Wall Street can't seem to agree on Ambarella. Given the strong third quarter and outlook for a weak fourth quarter, it seems as if the market itself will continue to have a mixed opinion on the shares.

Rick Munarriz owns shares of Ambarella. The Motley Fool owns shares of and recommends Ambarella and GoPro. 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.