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A Bull And A Bear Break Down Ambarella's Earnings

Jayson Derrick

Ambarella Inc (NASDAQ: AMBA) reported Tuesday fiscal first-quarter results that were mostly in-line with expectations.

Here is a summary of how one bull, one bear and neutral analyst reacted to the print.

The Analysts

Bank of America's Adam Gonzalez maintains an Underperform rating on Ambarella with a price target lifted from $36 to $42.

Morgan Stanley's Joseph Moore maintains at Overweight, unchanged $52 price target.

KeyBanc Capital Markets' John Vinh maintains at Sector Weight, no price target.

View more earnings on AMBA

Shares of Ambarella traded around $39.63 at time of publication.

BofA: 3 Key Risks

Ambarella's quarter matched expectations and management's second-quarter guidance beat estimates, Gonzalez wrote in a note. The company's computer vision (CV) technology could address a multi-billion dollar market and the company confirmed design wins across nine of the top 10 pro-surveillance camera makers.

Three key concerns warrant a continued bearish stance on the stock:

  1. Potential for Chinese clients (25 percent to 30 percent of sales) to be included in future U.S. blacklists;
  2. The company is seeing some signs of demand pull-in from trade concerns of $2 million to $3 million in the second quarter; and
  3. 10 percent to 20 percent of total sales address niche consumer markets that could see continued declines.

Related Link: Why KeyBanc Is 'Incrementally More Constructive' On Ambarella

Morgan Stanley: Stabilizing Business, Strengthening Pipeline

Management guided its second quarter higher due to strong demand in China, Moore wrote in a note, but trade war escalations with the U.S. implies some uncertainty for the back half of the year.

Nevertheless, Moore said the business is showing signs of stabilization after two "painful" years. The company has since improved its business mix to roughly 60 percent surveillance, a low 20s percentage exposure to autos, and a high-teen exposure to the consumer.

Moore said Ambarella's CV pipeline is getting stronger as management confirmed two new automotive wins in the reported quarter. This signals China-based automakers are "moving quickly" to become early adopters of Ambarella's products and management confirmed it expects to see benefits in 2021 or 2022, which is years ahead of its initial auto plans.

KeyBanc: Pipeline In 'Early Days'

Ambarella's CV design activities hit a new milestone as the CV25 chip achieving mass production, Vinh wrote in a note. The company offered an updated timeline on its CV ambitions, including a material benefit from professional security this year and a material contribution from the consumer security camera market next year.

Photo courtesy of Ambarella.

Latest Ratings for AMBA

Date Firm Action From To
Mar 2019 Upgrades Hold Buy
Aug 2018 Downgrades Neutral Underperform
Aug 2018 Maintains Hold Hold

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