It has been about a month since the last earnings report for Ambarella (AMBA Quick QuoteAMBA - Free Report) . Shares have lost about 0.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ambarella due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Ambarella Q3 Earnings and Revenues Beat Estimates

Ambarella reported third-quarter fiscal 2022 non-GAAP earnings of 57 cents per share, which outpaced the Zacks Consensus Estimate by 16.3%. The reported figure jumped over six-fold from the prior-year quarter’s earnings of 9 cents per share.

Revenues of $92.2 million beat the consensus mark of $90.5 million and increased 64% year over year. Ambarella’s top-line growth was primarily driven by improvement in the automotive and security camera businesses.

Customer & Market Details

Ambarella had two customers that contributed more than 10% in the reported quarter. WT Microelectronics, a fulfillment partner in Taiwan, which serves multiple customers in Asia, accounted for 63% of the company’s revenues. Chicony, a Taiwanese original equipment manufacturer, which manufactures for multiple customers, contributed 13%.

Moreover, the company noted that it continues to gain system-on-a-chip (“SoC”) share in the professional security-camera market outside China. Momentum in Ambarella’s CV flow SoCs in professional IP cameras across all geographies continued in the reported quarter.

Operating Details

Non-GAAP gross margin was 63.1%, up 40 basis points (bps) year over year in the third quarter.

A healthy customer mix supported by impressive operational execution aided gross-margin expansion during the third quarter, partially offset by  higher expenses incurred to overcome supply-chain challenges.

On a non-GAAP basis, operating expenses were $35.6 million, down 2.2% sequentially. Non-GAAP operating expenses were slightly below the low-end of the company’s prior guidance due to the timing of non-recurring research & development expenses.

Headcount at the end of the third quarter (before the closure of Oculii buyout transaction) was 824, with about 82% of the employees dedicated to engineering. Roughly 69% of these engineers are developing software and algorithms.

Net inventory was $47 million as of Oct 31, 2021, up 11.6% sequentially.

Balance Sheet & Cash Flow

As of Oct 31, 2021, Ambarella had cash and cash equivalents & marketable securities of $457.8 million compared with $449.2 million as of Jul 31, 2021.

During the third quarter, the company generated an operating cash outflow of $8.3 million.

Guidance

For fourth-quarter fiscal 2022, revenues are expected between $88.5 million and $91.5 million. Non-GAAP gross margin is anticipated to be 63-64%. Non-GAAP operating expenses are projected to be $39-$41 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted 45.24% due to these changes.

VGM Scores

At this time, Ambarella has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Ambarella has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.