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Ambarella (AMBA) to Post Q1 Earnings: What's in the Offing?

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Ambarella Inc. (AMBA - Free Report) is slated to release first-quarter fiscal 2019 results on Jun 5. The question lingering in investors’ minds is whether or not this video compression and image processing chip maker will be able to post a positive earnings surprise in the quarter.

Last quarter, the company posted a positive earnings surprise of 21.6%. Notably, Ambarella delivered positive earnings surprises over the trailing four quarters, with an average of 12.6%. So, let’s see how things are shaping up prior to this announcement.

What to Expect?

The Zacks Consensus Estimate for the quarter under review is pegged at earnings of 9 cents, which reflects a year-over-year plunge of 77%. Additionally, analysts polled by Zacks project revenues of roughly $56.2 million, down 12.3% from the year-ago quarter tally.

What’s Behind the Dismal Projection?

The company, during its fourth-quarter fiscal 2018 earnings conference call, had mentioned that a considerable decline in revenues from the drone market will adversely impact its next quarter’s top-line performance. Per the company, drone manufacturers have been witnessing a tough time and its major clients are now shifting focus on building low-priced drones.

Furthermore, revenue contribution from the sale of sports camera chips to GoPro (GPRO - Free Report) will likely continue declining. It should be noted that GoPro was one of the largest customers of Ambarella’s video-processing chips.

However, since fiscal 2018, GoPro has been fulfilling its majority of requirements from one of Ambarella’s competitors. This is hurting Ambarella’s shipment volumes, resulting in revenue decline throughout last fiscal. In fiscal 2018, GoPro’s contribution to total revenues went down to 12.8%, from 24.3% in fiscal 2017.

The company projects that the revenues from sales of chips to GoPro will continue declining throughout fiscal 2019.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Ambarella is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ambarella carries a Zacks Rank of 3, which increases the predictive power of ESP. However, the company has an Earnings ESP of 0.00%, as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 9 cents. The combination of Ambarella's Zacks Rank #3 and Earnings ESP of 0.00% makes surprise prediction difficult.

Ambarella, Inc. Price and EPS Surprise

Some Stocks With Favorable Combinations

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

QUALCOMM Incorporated (QCOM - Free Report) has an Earnings ESP of +7.21% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Palo Alto Networks, Inc. (PANW - Free Report) has an Earnings ESP of +0.89% and has a Zacks Rank #3.

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