Ambarella Pins Its Hopes on Computer Vision

Ambarella Inc. (NASDAQ: AMBA) announced solid fiscal second-quarter 2019 results on Thursday after the market closed, detailing a performance largely in line with the low bar it set in June. But the video-processing chip leader also followed with surprisingly low forward revenue guidance, leaving shares down big in after-hours trading as of this writing.

Put simply, with immaterial revenue from GoPro -- which was formerly its single largest customer -- and modest overall declines from its other supplementary markets, Ambarella finds itself eagerly awaiting more significant contributions from its early bets on new computer-vision chips.

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In the meantime, let's take a closer look at what Ambarella accomplished this quarter, and what investors can expect going forward.

Ambarella results: The raw numbers

Metric

Fiscal Q2 2019*

Fiscal Q2 2018

Growth (YOY)

Revenue

$62.5 million

$71.6 million

12.8%

GAAP net income (loss)

($6.9 million)

$3.3 million

N/A

GAAP earnings (loss) per share

($0.21)

$0.10

N/A

What happened with Ambarella this quarter?

  • Revenue was in line with Ambarella's most recent guidance, which called for between $60 million and $64 million.
  • Adjusted for stock-based compensation, Ambarella generated non-GAAP net income of $8.5 million, or $0.25 per share, down from $19.3 million, or $0.56 per share in last year's second quarter, but well above consensus estimates for $0.13 per share.
  • Adjusted gross margin declined 1.6 percentage points year over year to 61.4%, but it arrived above the high end of guidance for between 59% and 61%.
  • Ambarella repurchased 1,119,193 shares for $45 million this quarter, leaving $66.1 million remaining under its current repurchase authorization (which is good through June 5, 2019).

What management had to say

Ambarella CEO Fermi Wang stated:

Looking forward

More specifically on that disappointing outlook, Ambarella anticipates fiscal third-quarter revenue of between $55.5 million and $58.5 million, the midpoint of which represents a steep 36% decline from revenue of $89.1 million in the same year-ago period. Ambarella also called for adjusted gross margin to fall to between 59% and 60.5%.

By comparison -- and though we don't usually pay close attention to Wall Street's demands -- most analysts were expecting a more modest top-line decline, with consensus estimates calling for fiscal Q3 revenue of $73.5 million.

In the end, Ambarella is understandably focusing on the vast potential for its new computer-vision chips to return the company to sustained, profitable growth over the long term. But as I wrote when investors endured a similarly negative reaction to Ambarella's equally underwhelming short-term outlook last quarter, the market wants to see that growth begin to materialize before the stock will turn for the better.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ambarella and GoPro. The Motley Fool has a disclosure policy.