Buy Ambarella (AMBA) on Weakness - Canaccord Geunity

Ambarella (NASDAQ: AMBA) reported strong October quarter results with revenue (+42% Y/Y), margins, and EPS above consensus but offered guidance that was below expectations. Numbers are now reset to fully reflect GoPro weakness and Canaccord Genity analyst, Matt Ramsay, suggests buying the weakness because the growth story is still intact.

Ambarella reported strong Oct Q results with revenue (+42% Y/Y), margins, and EPS above consensus (and even above consensus prior to the initially disappointing OctQ guidance), driven by strong camera processor sales across several end markets, particularly drones, IP security, and automotive after-market cameras.

Ambarella’s portfolio of highly differentiated application-specific video encode, compression, and analytics processors will maintain strong market share against SoC competition and positions the company for strong sales and earnings growth as HD and UltraHD video capture and compression become increasingly important across several consumer and enterprise markets including action, wearable, automotive, security, and drone cameras.

Revenue of $93.2M and non-GAAP EPS of $1.08 beating estimates of $88.5M/$0.84. However, Ambarella guided for Q4/F'16 sales of $66.3M and implied non-GAAP EPS of $0.47 at the midpoints, well below $77.9M/$0.63 estimates. Despite guidance for seasonally down but strong Y/ Y growth in enterprise and home security, drone, and automotive cameras for the JanQ, management indicated sports camera revenue would be down sharply Q/Q and Y/Y as key customer GoPro works through channel and chip inventory.

Estimate reductions forced a drop in the price target from $100 to $90 but the BUY rating was reiterated.

For an analyst ratings summary and ratings history on Ambarella click here. For more ratings news on Ambarella click here.

Shares of Ambarella closed at $57.88 yesterday.

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