Ambarella: The Solid Quarter That Most Will Think Wasn't

• Ambarella Inc AMBA shares are up 71 percent year-to-date, despite a decline of 6 percent on Tuesday.
• Morgan Stanley’s Joseph Moore maintained an Equal-Weight rating for the company, while reducing the price target from $100 to $95.
• Although the company continues to execute well with new growth opportunities in home security, Moore believes that its risk reward is balanced.

Although Ambarella reported robust quarterly results, there was little upside versus the previous few quarters. The company’s July quarter results were boosted by product launches in sports cameras, which otherwise occur in the October quarter, analyst Joseph Moore pointed out.

The company’s October quarter growth is expected to be slower than the historic levels, since revenues from its leading customer - GoPro Inc GPRO - declined sequentially and year-over-year.

Moore said that the drones segment registered robust growth and contributed more than 10 percent of the company’s July quarter revenues. Ambarella’s gross margins continued to expand, driven by stronger sales in auto, wearables and drones as well as flat sales in professional IP security cameras.

With no major change expected in the competitive landscape, Ambarella is expected to continue dominating the high-end video market. Moore added, however, that risk reward is “fairly balanced” since the company’s growth “continues to be driven by volatile categories with limited visibility.”

The Non GAAP EPS estimates for CY15 and CY16 have been raised from $3.04 to $3.13 and from $3.54 to $3.56, respectively.