Ambarella Turns In Solid Q3 On Strong Sales To GoPro, Yet Shares Fall On Weak Outlook

Despite reporting better-than-expected third-quarter numbers, shares of Ambarella Inc AMBA fell more than 7 percent as inventory concerns weighed on the fourth quarter outlook, which missed Street view.

Quarterly Print Gist

Following is a gist of Ambarella’s results:

• Q3 EPS: $1.11 vs. the estimated $0.94.
• Revenue: $100.5 million vs. the estimated $97.3 million.
• Q4 revenue guide: $84 million–$87 million vs. estimated $90 million.

Analyst's Take

Ambarella turned in a solid beat to third-quarter estimates, despite weaker drone shipments, on strong sales to GoPro Inc GPRO, its key customer.

That said, the company noted possible negative revenue impact in early FY 2018 due to consumer-exposed customer inventory overhang, citing difficulty in tracking inventory levels for an increased number of customers.

Santa Clara, California-based Ambarella, which makes mountable and wearable cameras, expects to have greater visibility after the holiday season.

“Sales to GoPro were well above our estimates, giving us, management and investors concern for inventory builds a la last year. With this in mind, we see management’s 4QFY17 as prudently cautious though it probably includes seasonal decline in GoPro-related revenue,” Stifel analyst Kevin Cassidy wrote in a note.

Cassidy, who has a Buy rating on Ambarella shares, now expects GoPro to represent 5 percent of Ambarella’s FY 2018 revenue, down from its previous estimate of 10 percent. Otherwise, the analyst expects FY 2018/FY 2017 revenue growth in Ambarella’s IP professional and home security, drone, automotive and wearable camera markets.

Given the negative commentary from the company, the analyst trimmed his fourth quarter revenue and non-GAAP EPS to $85.5 million/$0.73 from $92 million/$0.79. Cassidy also cut the price target to $84 from $86.

At last check, shares of Ambarella fell 7.15 percent to $57.