Overdependence on GoPro to Hurt Ambarella (AMBA) Q4 Earnings

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Ambarella Inc.AMBA is slated to release fourth-quarter fiscal 2018 results on Mar 1. Last quarter, the company posted a positive earnings surprise of 13.6%. Notably, Ambarella delivered positive earnings surprises over the trailing four quarters, with an average of 12.8%. So, let's see how things are shaping up prior to this announcement.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Ambarella is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Ambarella carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company has an Earnings ESP of 0.00%, as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 37 cents. The combination of Ambarella's Zacks Rank #3 and Earnings ESP of 0.00% makes surprise prediction difficult.

Furthermore, the Zacks Consensus Estimate of 37 cents reflects a year-over-year slump of 59.8%. Additionally, analysts polled by Zacks project revenues of roughly $70.4 million, down 19.5% from the year-ago quarter.

Ambarella, Inc. Price and EPS Surprise

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

What's Behind the Dismal Projection?

The company, during its third-quarter earnings conference call, had noted that a considerable decline in GoPro GPRO revenues as well as the moderate fall in the drone market will adversely affect the fourth quarter's top-line performance.

Notably, GoPro is its largest customer which had accounted for approximately 19% of fiscal 2017 revenues. It used to buy video-processing chips from Ambarella for its action cameras. However, since the beginning of fiscal 2018, GoPro has been purchasing these chips from one of Ambarella's competitors. This is hurting Ambarella's shipment volumes, thereby depressing overall revenue growth.

Notably, sales to GoPro significantly declined year over year in the fiscal third quarter from $34.6 million to $18.4 million. Also, GoPro's contribution to total revenues was down to 20.7% in the fiscal third quarter from 30% in the year-ago quarter. Management predicts GoPro revenues in the fiscal fourth quarter to plummet to $13 million from $30.2 million reported in the year-ago quarter.

Furthermore, lingering weakness in the drone market has been denting this chip maker's revenues. The company has witnessed three back-to-back quarters of decline in this market. Moreover, Ambarella projects softness in the drone market to persist throughout fiscal 2018.

Some Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Square, Inc. SQ has an Earnings ESP of +3.96% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here . Inc. CRM has an Earnings ESP of +1.51% and a Zacks Rank #3.

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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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