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Ambarella's (AMBA) Q4 Earnings Top, Revenues Miss, Fall Y/Y

Zacks Equity Research

Ambarella Inc.’s AMBA fourth-quarter fiscal 2019 earnings beat the Zacks Consensus Estimate while revenues missed the same.

Meanwhile, on a year-over-year basis, both the top- and the bottom-line results suffered a decline.

The company’s non-GAAP earnings came in at 14 cents per share, much higher than the Zacks Consensus Estimate of 4 cents. However, it witnessed a substantial decrease from the year-ago quarter’s level of 47 cents due to lower revenues and elevated operating expenses.

Quarterly Details

The company’s revenues in the fiscal fourth quarter declined 28% year over year to $51.1 million and lagged the Zacks Consensus Estimates of $52 million. Consumer electronics revenues in the reported quarter accounted for about 100% of the year-over-year decrease in the company’s top line. Fall in promotional activity of a major automotive customer and overall caution in the auto market softened auto revenues.

However, revenues from the security camera market rose nearly 10% year over year, led by an increase in use of professional security cameras.

In the fiscal fourth quarter, the company had two 10% plus revenue customers. WT Microelectronics, a fulfillment partner in Taiwan, represented 62% of revenues while Chikoni, a Taiwanese ODM (original design manufacturer), came in at 13%.

On a non-GAAP basis, the company reported gross margin of 60.6%, which came in 410 basis points below the year-ago quarter’s figure.

On a sequential basis, non-GAAP operating expense increased nearly 3% to $29.5 million due to higher R&D investment in computer vision (CV) product technology and platforms, which offset reduction in SG&A.

Ambarella, Inc. Price, Consensus and EPS Surprise

Ambarella, Inc. Price, Consensus and EPS Surprise | Ambarella, Inc. Quote

Balance Sheet

Ambarella ended the fiscal fourth quarter with cash and cash equivalents & marketable securities of $354.9 million, up from $348.6 million in the previous quarter.

During the quarter under review, the company bought back 104,160 shares for a total cash consideration of $3.5 million approximately.

Since the inception of its share-repurchase program on Jun 5, 2018, the company bought back a total of 1,792,156 shares for roughly $68.1 million.

Fiscal 2019 Highlights

For fiscal 2019, revenues were down 23% year over year to $227.8 million.

Non-GAAP gross margin contracted 280 bps to 61.2%.

Non-GAAP earnings were 73 cents per share, much lower than $2.32 reported in fiscal 2018.

Outlook

On the earnings call, management noted that order patterns of customers are becoming more volatile owing to global trade tensions. Management anticipates security revenues to wane on a sequential basis due to less professional security, affected by order volatility, economic downslide and weak seasonal order patterns from largest customers in China. However, consumer security is likely to be restored, backed by a favorable customer mix and some inventory build in the consumer security market.

Automotive revenues, driven by OEM and Tier 1 customers, are anticipated to grow sequentially. However, the company expects consumer electronics revenues to persistently decline over the next two to three years.

For first-quarter fiscal 2020, revenues are expected to be $47 million, fluctuating up or down by 3%. Non-GAAP gross margin is anticipated within 59-60%. Non-GAAP operating expenses are envisioned in the range of $30.5-$32.5 million.

The company predicts quarterly revenues to be stable in the first half of fiscal 2020 on account of a gradual ramp-up in CV revenues from the professional security camera market and projected growth revival in automotive business and less impact from the weak consumer electronics business. Management forecasts growth to return in the second half.

However, global tariff issues, probable export restrictions and changes in the macroeconomic conditions, which include deleveraging in China are some unrelenting concerns/woes.

Zacks Rank & Stocks to Consider

Ambarella currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader technology sector are CommVault Systems, Inc. CVLT, eGain Corporation EGAN and Fortinet Inc. FTNT, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for CommVault, eGain and Fortinet is projected at 15.8%, 30% and 16.8%, respectively.

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