It has been about a month since the last earnings report for Ambarella (AMBA Quick QuoteAMBA - Free Report) . Shares have added about 4.2% 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 Top, Revenues Meet

Ambarella reported third-quarter fiscal 2019 results wherein earnings beat the Zacks Consensus Estimate while revenues were in line with the same.

However, on a year-over-year basis, both the top- and bottom-line results registered a decline. The top line, however, was within the company’s previously projected range.

The company’s non-GAAP earnings came in at 21 cents per share, much higher than the Zacks Consensus Estimate of 9 cents. However, it witnessed a substantial decrease from the year-ago quarter’s level of 85 cents due to lower revenues and elevated operating expenses.

Quarter in Detail

The company’s third-quarter fiscal revenues plunged 35.7% year over year to $57.3 million.
 
Transition of the business away from consumer electronic applications (which comprised less than 15% of total revenues in the reported quarter) toward computer vision product manufacturing coupled with geopolitical and macroeconomic challenges took a toll on the company’s revenues.

GoPro revenues persisted to be insignificant in the fiscal third quarter. An expected softness in revenues from non-GoPro sports cameras and wearables, particularly in the second half of the fiscal, has been a concern. The company also predicted that considerably weak revenues from the drone market will adversely impact the reported quarter’s top-line performance.

However, management notes that the company’s strategy to focus on computer vision applications in the IP security, automotive and robotics AI markets is an upside.

During the last leg of the quarter under review, Ambarella demonstrated its newly designed CV2 and CV22 System-on-Chips (SoC) plus home monitoring cameras among others at the 2018 Security China Exhibition on Public Safety and Security in Beijing.

Growing demand for single chip solutions with integrated computer vision processing in the surveillance camera market bodes well for the company’s CVflow architecture based SoC solutions.

Management notes the reluctance of non-China security camera manufacturers to design SoC for HiSilicon of Huawei, Ambarella’s main competitor. This, along with its technical expertise, has helped the company grab HiSilicon’s market share.

The company also announced a string of corporate entities during the reported quarter, which have adopted its products and solutions to expand and enhance respective business capabilities.

Margins

On a non-GAAP basis, the company reported gross margin of 60.9%, which came in 310 basis points below the year-ago quarter’s figure. This was primarily due to the shift of the company’s revenue mix from high margin consumer revenues to low margin surveillance revenues in China.

However, on a sequential basis, we observe that non-GAAP operating expenses for the quarter under consideration totaled $28.7 million, down 4% sequentially, thanks to lower employee related expenses and cost-control measures undertaken by Ambarella.

Non-GAAP net income plunged to $7 million from $29.4 million reported in the year-ago quarter.

Balance Sheet

Ambarella ended the fiscal third quarter with cash and cash equivalents & marketable securities of $348.6 million, down from $376 million recorded in the previous quarter.

During the reported quarter, the company bought back 825,191 shares for a total cash consideration of $30.8 million approximately.

Since the inception of its share-repurchase program on Jun 5, 2018, the company bought back a total of 1,687,996 shares for worth $64.6 million roughly.

Guidance

For fourth-quarter fiscal 2019, revenues are expected to be $51 million, fluctuating up or down to 3%. The guidance is lower than the Zacks Consensus Estimate of $54.92 million.

Fall in demand for consumer and other products coupled with macroeconomic factors are anticipated to persistently keep the fourth-quarter revenues under pressure.

An estimated increase in the U.S. tariff to 25% and the chances of new export restrictions will presumably loom on the fiscal fourth-quarter results.

Additionally, a sluggish light vehicle production is a concern for the fiscal fourth quarter.

Non-GAAP gross margin is projected between 59% and 60.5%. It is slightly stressed due to the change in revenue mix.

Non-GAAP operating expenses are envisioned in the range of $29-$31 million on account of increased employees in engineering.

The company also predicts the downtrend in consumer electronics business to remain during fiscal 2020.

In the current quarter, the automotive market is forecast to be flat as compared to the fiscal third quarter.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months. The consensus estimate has shifted -27.09% due to these changes.

VGM Scores

At this time, Ambarella has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth 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.

Outlook

Ambarella has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.