Could This Be Good News for AMBA Stock?
Ambarella Inc (NASDAQ:AMBA) stock had a terrible run since last summer. That really shouldn’t come as a surprise. When the stock price of its main client plunges 80%, what would you expect the stock to do? Today, Ambarella’s stock price is just above a third of what it was back in June 2015.
In case you aren’t overly familiar with AMBA stock, Ambarella makes high-definition video capturing and processing chips. Its products are used in all kinds of cameras, including sports cameras, wearable cameras, security IP cameras, and dash cams in cars. Its compression chips are also widely used in television broadcasting.
For the better half of last year, the stock market’s hottest camera maker was none other than GoPro Inc (NASDAQ:GPRO). With the wow factor from many skydiving and wingsuit flying videos captured by GoPro’s action cameras, GPRO stock gained solid momentum. And as the chip supplier of GoPro’s products, Ambarella stock also had a strong bull run.
However, the hardware business can be risky. Once the market realizes that not everyone needs an action camera, GoPro’s stock price got caught in a free-fall. From last August to this February, GPRO’s stock price dropped from more than $64.00 to less than $10.00.
Recently, sentiment seems to be changing around the action camera maker. And this might be a turnaround opportunity for AMBA stock as well.
On Wednesday, April 13, GoPro announced that it has hired Daniel Coster as vice president of design. Note this: Coster has been a core member of Apple Inc.’s (NASDAQ:AAPL) design team for more than 20 years and holds more than 500 design patents. At GoPro, he would be reporting directly to company founder and CEO Nick Woodman. (Source: “GoPro Appoints Danny Coster Vice President of Design,” GoPro Inc, April 13, 2016.)
Competition is getting intense in GoPro’s industry. If Coster can help the company bring out great products soon enough, GoPro might get another shoot at taking over the mass market. And let’s not forget that Coster was behind the design of the iconic “iPhone 4.”
GoPro is also about to release several new products, including a synchronized six-camera spherical array called “Omni” and a drone named “Karma.”
What does it mean for Ambarella? Well, all of GoPro’s current offerings use Ambarella’s technology. The upcoming virtual reality-capturing camera, the Omni, will have six GoPro cameras. The Karma drone also boasts another “oh my God” factor with the footage it could capture. If these two products turn out to be great, demand could be huge for Ambarella’s video, image, and audio processing chips.
With Coster onboard, the main goal could be to make a product for the mass market. If that’s successful, Ambarella’s business would get yet another boost.
Of course, as Ambarella learned the hard way, relying too much on your main client is not always a good thing. Fortunately, the company has been improving its own competitiveness.
Earlier this month, Ambarella introduced the “S5” system-on-chip (SoC) chips. These products are targeted at high-quality 4K and multi-imager IP camera makers. The new chips boast 4K multi-exposure high dynamic range (HDR) fusion, 360-degree de-warp, and ultra-low light processing. With the virtual reality industry on the rise, content creators would love to find S5 chips in their devices. (Source: “Ambarella S5 IP Camera SoC Delivers 4K 10-bit H.265 Video and Multi-Imager Capabilities to the Professional Surveillance Industry,” Ambarella Inc, April 5, 2016.)
The Bottom Line on AMBA Stock
At the end of the day, investors care about the bottom line. With non-GAAP gross margin at more than 64% and a quarterly net income of $21.6 million last time it reported, Ambarella seems to be in decent shape. (Source: “Ambarella, Inc. Announces Fourth Quarter and Fiscal Year 2016 Financial Results,” Ambarella Inc, March 3, 2016.)
The best part is that at $45.02 apiece, Ambarella shares are trading at just 15 times the company’s forward earnings. Given its solid potential ahead, AMBA stock could offer significant value.