Why Ambarella Stock Could See Further Upside Ahead
For the most part of the past 12 months, Ambarella Inc (NASDAQ:AMBA) stock has been traveling downhill. But more recently, things started to change. After its earnings release last Thursday, Ambarella stock surged an impressive 9.39%. Does this mean the worst is over for the company?
Well, based on its financials, Ambarella is certainly on its way to becoming relevant again.
In its most recent fiscal quarter, Ambarella generated $57.2 million in revenue, beating Wall Street’s expectations of $57.0 million. The company also earned an adjusted net income of $11.4 million, translating to earnings of $0.34 per share, which smashed analysts’ estimates of $0.28. (Source: “Ambarella Inc Announces First Quarter Fiscal Year 2017 Financial Results,” Ambarella Inc, June 2, 2016.)
Note that despite AMBA stock’s downfall in the past year, the company’s bottom line seemed to turn out better than expected. In the last four fiscal quarters, Ambarella has beaten Wall Street’s earnings-per-share (EPS) estimates every single time. (Source: “Analyst Estimates,” Yahoo! Finance, last accessed June 3, 2016.)
The main reason behind AMBA stock’s downfall was its relationship with action-camera maker GoPro Inc (NASDAQ:GPRO). Ambarella makes high-definition video capturing and processing chips for camera makers, including GoPro. When GoPro’s products became the hottest on the market, Ambarella’s business soared. Last summer, Ambarella was earning one-third of its revenue from GoPro.
But as GoPro’s growth slowed down, Ambarella’s business was affected as well. In the process, Ambarella stock tanked.
In the company’s press release, Chief Executive Officer Fermi Wang acknowledges the problem, but he is quite upbeat about the future: “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.)
That sounds a bit vague. But if you listened to Ambarella’s earnings conference call, you’d see that the company might actually see a way out.
By now, investors have realized that not everyone is a fan of parachuting or wing-suit flying, so there is only going to be so much growth in the action-camera market. However, that doesn’t mean it’s the end for Ambarella because it has found a new field full of potential—the automotive industry.
It’s not just action cameras that need video capturing and processing chips. Dash cams have become a popular choice for drivers around the world, and many of them are starting to use Ambarella’s technology.
In the earnings conference call, Wang told analysts that a bunch of dash cam makers have launched products with Ambarella’s chips. In the quarter, Chinese Internet security company Qihoo 360 announced two Ambarella-powered dash cams. One of them is based on Ambarella’s “A12A” system-on-a-chip (SoC) to enable gesture control. (Source: “Ambarella’s CEO Dr. Fermi Wang on Q1 2017 Results – Earnings Call Transcript,” Seeking Alpha, June 2, 2016.)
Also, Chinese television and technology company LeTV launched its “Le 1s” dash cam based on Ambarella’s “A12” SoC. It offers super-HD resolution and has a number of driver assistance features, such as departure warnings, forward collision warnings, and front vehicle movement detection.
Note that even original equipment manufacturers (OEMs) have started to offer dash cams as a factory-installed option. For instance, Peugeot’s “3008” model has an option for a factory-installed Garmin camera recorder based on Ambarella’s “A7L” SoC.
Ambarella’s SoC technologies are already widely used in after-market dash cams. Now, as more OEMs start offering the option of dash cams right out of the factory, AMBA’s chips could reach a broader audience.
At the same time, more and more automakers today are fitting their cars with advanced driver assistance systems. Many of those systems need to process and analyze information from cameras fitted around the vehicle. That could also give AMBA stock a further boost.
The Bottom Line on AMBA Stock
No doubt, action cameras alone are not going to be enough to propel AMBA stock back to its heyday. Fortunately, trends in the automotive industry point to a world where every car is fitted with multiple cameras—that should be reassuring for Ambarella stock investors.