It has been about a month since the last earnings report for Ambarella (
AMBA Quick Quote AMBA - Free Report) . Shares have added about 20.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Ambarella due for a pullback? 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’s Q3 Earnings & Revenues Top Estimates
Ambarella reported third-quarter fiscal 2021 non-GAAP earnings of 9 cents per share, handily outpacing the Zacks Consensus Estimate of 5 cents. However, earnings slumped 71.9% year over year.
Meanwhile, revenues of $56.1 million beat the consensus mark $54.1 million but declined 17.4% year over year. Softness in the automotive and other markets hurt Ambarella’s top-line growth in the reported quarter, partially offset by year-over-year improvement in the security-camera business.
Nonetheless, the company’s third-quarter revenues marked 12% growth sequentially mainly on increase in automotive and other business revenues. However, the company witnessed a sequential decline in Security business revenues.
The momentum in AI business continued as CV revenues represented slightly more than 10% of the total third-quarter revenues. Ambarella witnessed an increase in blended average selling price (ASP) owing to the solid demand for CV SoC which carries higher ASP compared with non-CV solutions.
Customer & Market Details
Ambarella had two customers that contributed more than 10% in the reported quarter. WT Microelectronics, a fulfillment partner serving multiple customers, accounted for 62% of the company’s revenues. Chicony, a Taiwanese OEM which manufactures for multiple customers, contributed 18%.
Moreover, the company noted that it continues to gain 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.
Ambarella reported non-GAAP gross margin of 62.7%, up 460 basis points (bps) year over year in the third quarter. The gross margin figure came in better than management’s guidance of 60-62% range. On a GAAP basis, gross margin advanced 440 bps to 62%.
The healthy customer and product mix supported by impressive operational execution aided gross-margin expansion during the third quarter.
Total operating expenses on a GAAP basis flared up 10.3% year on year to $51 million. On a non-GAAP basis, operating expenses were $32.4 million, toward the higher-end of management’s guided range of $31-$33 million. Sequentially, non-GAAP operating expenses rose 7.3% due to higher employee expenses outside the United States as normalcy resumed as well as additional chip-development costs.
Research & development expenses shot up 12.6% year on year to $36.6 million. In addition, selling, general and administrative expenses of $14.5 million were up 4.9% year over year.
Total headcount at the end of the third quarter was 766, with about 81% of the employees dedicated to engineering. Roughly 69% of Ambarella’s total headcount is located in Asia.
Balance Sheet & Cash Flow
As of Oct 31, 2020, Ambarella had cash and cash equivalents & marketable securities of $423.6 million compared with $410.7 million as of Jul 31.
During the third quarter, the company generated an operating cash flow of $13.1 million.
Ambarella’s board approved an extension of the current $50 million repurchasing program for an additional 12 months ending Jun 30, 2021. Currently, $49 million is available under the program.
For fourth-quarter fiscal 2021, revenues are expected between $56 million and $60 million. Non-GAAP gross margin is anticipated to be 59-61%. Non-GAAP operating expenses are projected at $31-$33 million.
Management anticipates security-camera revenues to be up in the low double digits sequentially. Automotive revenues are expected to increase at least 20% on a year-over-year as well as sequential basis. However, Other revenues are expected to decline quarter on quarter.
Ambarella also stated that the rate of order push-out and cancellations has slowed down, and design activity has started to recover.
Moreover, Ambarella expects CV products to contribute 10% of revenues in fiscal 2021. Additionally, the company forecasts CV products to account for about 25% of its total revenues in fiscal 2022.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 5.75% due to these changes.
At this time, Ambarella has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Ambarella has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.