Ambarella Rises After Reporting Quarterly Earnings Beat Expectations

Shares of Ambarella (AMBA) are rising after the semiconductor design company reported better-than-expected earnings and offered guidance on Thursday.

EARNINGS: After the market close on Thursday, Ambarella, a major supplier to camera maker GoPro (GPRO), reported third-quarter earnings per share of 75c on a revenue of $89.1M, exceeding analyst estimates of 67c and $88.97M, respectively. The company also forecast fourth-quarter revenue between $68M-$72M, in line with analyst estimates of $70.27M, and a gross margin between 62%-63% on a non-GAAP basis.

GOPRO REVENUES SEEN DOWN: On Ambarella's third quarter conference call, CEO Fermi Wang said "We are very pleased with our execution and progress in the development of our computer vision solutions," adding, "In the automotive markets, we see opportunities in multiple applications spending car recorders, electronic mirror, surround view, advanced driver assistance systems or ADAS, and ultimately fully autonomous vehicles." However, CFO George Laplante said, "We expect GoPro (GPRO) revenues to decline to approximately $13M from $30.2M the same period in the prior year."

BULLISH ANALYST REACTION: On Friday, Canaccord analyst Matthew Ramsay said Ambarella's solid Q3 results were driven by strength in several end markets including both professional and home security, automotive and wearable cameras. The analyst believes that although near-term bumps remain, the current share price undervalues the company's computer vision IP, growth potential and engineering teams. Ramsay reiterated his Buy rating and raised his price target to $67 from $65. Additionally, Morgan Stanley analyst Joseph Moore said Ambarella's commentary on its computer vision chip was notably stronger and he expects to get much more detail in the coming months. Ambarella management said they had sampled the first version of the CV chip to automotive and surveillance customers and there is a possibility they could announce auto development relationships for CV in 2018, maybe even the first half of the year, noted Moore, who maintained an Overweight rating and $60 price target on Ambarella shares. Meanwhile, Stifel analyst Kevin Cassidy said that Ambarella is continuing to gain traction in raising its dollar content per vehicle which is an important key for securing future CV-based automotive ADAS designs. The analyst said he believes the company will continue to expand in the automotive market via dashboard cameras and electronic mirrors and the company's takeover of VisLab will help it integrate intelligent processing capabilities into its drones and security cameras. He has a Buy rating and $62 piece target on the name.

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