Ambarella's A9SE Ultra HD 4K Flying Camera System-on-Chip.

Ambarella (NASDAQ:AMBA) is set to release fiscal fourth-quarter 2016 results Thursday after the market close. With shares down more than 15% thus far in 2016, and 50% over the past six months as of this writing, the video processing chip specialist  has plenty to prove if it wants to get back on investors' good graces.

In December, the market was torn after Ambarella posted reasonably strong fiscal third-quarter results -- with both revenue (up 41.9% year over year) and earnings (up 65.6%) arriving well above expectations -- but followed with underwhelming guidance that called for year-over-year revenue growth to decelerate to just 4% from last year's fourth quarter. CFO George Laplante noted that continued headwinds in the wearable sports camera market are expected to have a "substantial impact on... shipments in Q4, extending into Q1 of fiscal year 2017."

In other words, Ambarella's guidance was held back by the relative underperformance of key customer GoPro (NASDAQ:GPRO). GoPro, for its part, is expected to account for as much as 25% of Ambarella's revenue this year, and generally dominates the wearable sports camera market to which Laplante referred. However, four weeks ago, GoPro revealed its own painful holiday-quarter performance, with revenue declining more than 30% year over year to $436.6 million -- albeit a drop exaggerated by one-time price protection charges of $21 million related to its decision to reduce the price of its HERO4 Session camera in December. In addition, GoPro opted to narrow its product offering to a core of its three higher-end capture devices: the $199 HERO4 Black, $399 HERO4 Silver, and $499 HERO Black models. 

What remains to be seen is the extent to which GoPro's weakness and subsequent product line decisions will negatively impact Ambarella given its reliance on unit sales of GoPro devices to drive revenue for the wearable camera segment. Investors should listen closely for any updates, then, from Amabarella management on this topic.

That's not to say Ambarella's future is entirely dependent on the action-camera maker. It has worked hard to diversify its revenue streams by penetrating new market verticals, including IP security, home security monitoring, automotive cameras, and flying cameras (i.e., drones). The latter notably represents a fast-growing market that already accounted for more than 10% of Ambarella's total revenue as of fiscal 2016's second quarter. 

To that end, investors should also keep in mind recent reports asserting Ambarella is facing renewed pricing pressure from Qualcomm. This isn't exactly a new threat, but if the chip juggernaut has indeed ramped its efforts to convince drone makers to incorporate its Snapdragon flight platform in their  designs, including both GoPro -- which promises the launch of its "Karma" drone before the second half of this year -- and China-based drone market leader DJI, it could mean Ambarella's previously juicy margins in the segment are at risk of contracting.

These challenges notwithstanding, investors should also recall that, three months ago, while Ambarella management predicted that revenue in the first quarter of fiscal 2017 would decline slightly on a year-over-year basis, all markets (including wearable sports cameras) should resume year-over-year growth from then on out. To be sure, Ambarella's most recent guidance calls for fiscal 2017 revenue to climb between 15% and 20%. For perspective, that's below Ambarella's long-term target of 20% to 25% annualized growth, but (assuming it meets the midpoint fiscal Q4 2016 guidance this week) also above analysts' current consensus estimates for fiscal 2017 revenue to climb 11.4%, to $349.4 million.

From a long-term investing standpoint, we'd be remiss if we solely focused on the coming year. And, arguably, what's most important is whether Ambarella's longer-term growth story remains intact as it continues to diversify its revenue streams into multiple promising market verticals. In the meantime, however, this week's report should give us a clearer picture of how the early stages of this story will unfold.

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.