Ambarella Inc: This Is Why Ambarella Stock Is Surging Today

Ambarella IncInvestors Upbeat on Ambarella Stock

Ambarella Inc (NASDAQ:AMBA) released its first-quarter earnings on Thursday. Although the chipmaker’s profits were down 91% year-over-year, AMBA stock jumped 9.6% in after-hours trading. (Source: “Ambarella Reports Sharp Decline in Revenue, Profit,” The Wall Street Journal, June 2, 2016.)

Although there were a few bright spots in the earnings report, the elephant is still in the room. Ambarella’s biggest liability remains its close-knit relationship with GoPro Inc. Unless that changes, the company is doomed to follow GPRO stock down the rabbit hole.

For instance, when GoPro delayed shipping its inaugural drone camera, it struck a blow to its suppliers as well. The action camera maker has shown difficulty innovating past its initial concept and timing its product launches.

On another note, investors have been fleeing the entire microprocessor industry for the last 12 months. In particular, AMBA stock had lost approximately 54% of its market capitalization, meaning that yesterday’s surge was most probably the result of low expectations.

The firm declared $0.34 adjusted earnings per share on $57.2 million in revenue. That performance actually exceeded analysts’ expectations. They had been predicting $0.28 adjusted earnings per share on $57.01 million in revenue.

AMBA stock may continue to rise through its second quarter as the company starts a $75.0-million repurchase plan. It will take a full six months, but the company will finally return some cash straight into the hands of shareholders.

It’s possible this earnings beat could raise hopes for Ambarella, but the company isn’t taking any chances. CEO Fermi Wang took the time to tamp down on future expectations, citing “near term headwinds” against the wearable sports camera market:

“We are pleased with our execution during the first fiscal quarter of 2017, as we introduced our first 14nm IP camera SoC and continued to see strong design win momentum for our new 4K and HEVC SoC families across all market segments. While near term headwinds continue in the wearable sports camera market, and we expect some adverse impact to our business caused by the disruption in supply of Sony image sensors to our customers as a result of the April 2016 Japanese earthquake, we remain confident of renewed revenue growth based on our technology leadership, product roadmap and the potential of our current and future markets.” (Source: Ibid.)