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Why Is Ambarella (AMBA) Up 11.7% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Ambarella (AMBA). Shares have added about 11.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Ambarella due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Ambarella Q1 Earnings Top Mark, Fall Y/Y

Ambarella first-quarter fiscal 2020 earnings and revenues beat the Zacks Consensus Estimate.

However, 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 a penny per share against the Zacks Consensus Estimate of a loss of 5 cents. However, it witnessed a substantial decrease from the year-ago quarter’s level of 13 cents due to lower revenues and elevated operating expenses.

Quarterly Details

The company’s revenues in the fiscal first quarter of $47.2 million surpassed the consensus mark of $47 million but declined 17% year over year.

During the quarter, automotive and other product revenues increased sequentially while revenues from security cameras decreased sequentially due to fall in professional security camera revenues.

Geopolitical factors induced order pull-ins from security camera customers in China, which negatively impacted the company’s revenues and gross margin.

In the fiscal first quarter, the company had two 10% plus revenue customers. WT Microelectronics, a fulfillment partner in Taiwan, represented 59% of revenues while Chikoni, a Taiwanese ODM (original design manufacturer), came in at 18%.

On a non-GAAP basis, the company reported gross margin of 59.6%, which was 100 basis points below the year-ago quarter’s figure.

On a sequential basis, non-GAAP operating expense inched up nearly 1.2% to $29.9 million due to higher payroll taxes and other payroll related expenses.

Balance Sheet

Ambarella ended the fiscal first quarter with cash and cash equivalents & marketable securities of $366.2 million, up from $358.9 million in the previous quarter.

Outlook

For second-quarter fiscal 2020, revenues are expected between $51 million and $53 million. Non-GAAP gross margin is anticipated within 57-59%. Non-GAAP operating expenses are anticipated in the range of $29.5-$31.5 million.

The company envisions automotive and security revenues to increase sequentially while all other revenues might deteriorate. The company predicts consumer electronics revenues to be persistently soft over the next two to three years.

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.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 25.29% due to these changes.

VGM Scores

At this time, Ambarella has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Ambarella has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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