Analyst's Take On Ambarella Amid GoPro, Drone Checks: Cautious, But Remaining Overweight

Pacific Crest analyst Brad Erickson believes there is near-term risk to the Street estimates for Ambarella Inc AMBA, driven by its customer GoPro Inc GPRO and, to a lesser degree, drones.

Erickson noted that his checks in the United States revealed relatively in-line GoPro's Hero 5 Black sales so far, although weaker Hero 5 Session demand is serving as an offsetting factor.

Pacific Crest believes Black Friday discounts for DJI Phantom 3 and 4 drove incremental demand. The firm also noted better-than-expected demand for the recently launched DJI Mavic Pro. However, the analyst sees risk for Ambarella's October and January quarters due to recent product delays and its conversation with re-sellers.

Estimates Lowered

The firm lowered its estimates for the company, with the 2017 and earnings per share estimate now at $2.52 and $3.29, respectively compared to $2.73 and $3.35 previously. The firm also reduced its 2017 and 2018 revenue estimates to $303.6 million and $371.3 million, respectively from $316.7 million and $374.4 million. Consequently, the price target moves down to $70 from $75.

Rating, Further Justification

That said, Pacific Crest remains Overweight longer-term on the shares of Ambarella, given its solid secular growth exposure outside of action cameras and under-appreciated longer-term margin potential. The firm thinks the company's differentiated HD video technology is an asset that larger peers could find valuable down the road.

The company's secular growth exposure and cost profile, according to the firm, could help it return to sustainable 20 percent-plus growth. The firm, however, prefers to wait until after the print to add to positions.

At Time Of Writing

• Ambarella was down 1.29 percent at $62.80.
• GoPro was up 1.33 percent at $9.94.

Image Credit: By dronepicr (Gopro Karma drone hero 5) [CC BY 2.0], via Wikimedia Commons