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Ambarella Q4 Earnings Beat, Shares Fall on Weak Outlook

Shares of Ambarella Inc.AMBA fell 7.3% in after-hours trading after the company provided a tepidfirst-quarter fiscal 2017 revenue guidance.

The company reported fourth-quarter fiscal 2016 earnings (including stock-based compensation expenses but excluding other one-time items) of 33 cents per share, which handily beat the Zacks Consensus Estimate of 27 cents. However, earnings decreased substantially from 53 cents per share reported in the year-ago quarter.

Quarter Details

Ambarella's fourth-quarter revenues not only increased 5.1% year over year to $67.9 million but were also ahead of the Zacks Consensus Estimate of $65 million. The year-over-year improvement was attributed to better-than-expected growth of Ambarella's products. According to the press release, the company "saw strong sales from professional IP security, automotive aftermarket, home monitoring and flying camera markets. This was largely offset, however, by a continued decline in the wearable sports camera market."

Ambarella's gross margin was down 33 basis points (bps) from the year-ago quarter to 63.7%. The company's operating expenses increased 40.6% from the prior-year quarter. The increase primarily stemmed from higher research and development as well as selling, general and administrative expenses. As a percentage of revenues, operating expenses increased from 37.6% to 50.3% on a year-over-year basis. The company reported operating income of $9.1 million compared with $17.1 million in the year-ago quarter. Operating margin contracted from 26.5% to 13.4% year over year, primarily due to higher operating expenses as a percentage of revenues.

Ambarella's net income (including stock-based compensation expenses but excluding other one-time items) came in at $11.2 million or 33 cents per share compared with $17.7 million or 53 cents per share in the year-ago quarter.

Ambarella exited the fourth quarter with cash and cash equivalents and marketable securities of $307.9 million compared with $276.78 million in the previous quarter. Receivables were $39.4 million as against $46.3 million in the prior quarter. The company had no long-term debt during the quarter.

Outlook

For the first quarter of fiscal 2017, Ambarella expects total revenue in the range of $55-$57 million. The Zacks Consensus Estimate is pegged at $62 million. Non-GAAP gross margin is expected to be in the range of 60.5% to 62%. The company expects non-GAAP net income for the first quarter of fiscal 2017 in the range of $8 million to $10 million.

Conclusion

Ambarella reported better-than-expected fourth-quarter fiscal 2016 results. The year-over-year revenue comparisons were also favorable. However, the company provided a tepid first-quarter revenue guidance.

Ambarella develops chips for the high-definition (HD) video capture market and is currently witnessing an increase in the demand for its products.

Furthermore, since Ambarella started working with GoPro, its top line improved significantly. The chipmaker's technology is used in GoPro's first person point-of-view cameras that allow users to take videos from snowboards, surfboards, or car dashboards. The company has also partnered with Alphabet Inc. GOOGL for its "Helpouts" services. These services help users with a wide range of jobs from fixing their cars to taking art lessons, through a video camera connected to Wi-Fi or Bluetooth network.

Further, Ambarella has been trying to expand its reach in other markets, such as IP security, automotive, and drones/flying cameras. In July, the company acquired VisLab S.r.l. in an all-cash deal worth $30 million. By integrating VisLab's computer vision and intelligent control systems with its video processing technology, Ambarella will be able to develop high performance products and target its core markets - automotive, IP security, wearable and flying cameras.

Also, the VisLab takeover will boost Ambarella's product portfolio and help it compete with Israel-based Mobileye N.V. MBLY , currently the world's leading provider of driver assistance technology.

However, the company has been criticized for the lack of innovation by short seller, Citron Research. According to Citron, the company faces severe commoditization risks and hence, stiff competition, going ahead.

Currently, Ambarella has a Zacks Rank #3 (Hold). A better-ranked stock from the same space is FormFactor Inc. FORM , which has a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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