Why Ambarella, Inc. Stock Popped Today

What happened

Shares of Ambarella Inc. (NASDAQ: AMBA) are up 16.4% as of 12:30 p.m. EST Friday after the video processing chip specialist announced better-than-expected fiscal third-quarter 2018 earnings.

More specifically, Ambarella's revenue declined 11.4% year over year to $89.1 million, within Ambarella's guidance provided last quarter for revenue between $87.5 million and $90.5 million. Trending toward the bottom line, Ambarella's adjusted gross margin arrived at 64%, above guidance for between 62% and 63.5%. That translated to adjusted net income of $25.7 million, or $0.75 per diluted share, above investors' expectations for earnings of $0.67 per share.

So what

As expected, Ambarella's top-line decline was primarily driven by lower sales of chips to GoPro during the quarter (down nearly 47% year over year to $18.4 million). Meanwhile, non-GoPro revenue climbed 7.2% to $70.6 million, as strength in the IP security, auto, and non-GoPro wearables markets was partially offset by moderate declines in drone revenues.

Perhaps most encouraging, Ambarella CEO Fermi Wang noted the company had "solid execution in support of the development and delivery of our next generation computer vision solutions." Ambarella successfully demonstrated its CV1 chip to customers and commenced sampling in both the security and automotive markets.

Now what

For the current quarter, Ambarella expects revenue to be between $68 million and $72 million. That's down roughly 22.3% to 17.7% year over year, but about in line with consensus estimates. Ambarella also anticipates adjusted gross margin will arrive between 62% and 63.5%.

All in all, this was a solid quarter from Ambarella in which the company sustained its momentum in key markets and continued to make progress with its longer-term computer vision initiatives. And given its bottom-line beat, it's no surprise to see shares climbing higher today.

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