It has been about a month since the last earnings report for Ambarella (AMBA Quick QuoteAMBA - Free Report) . Shares have added about 31.1% 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 the most recent earnings report in order to get a better handle on the important drivers.

Ambarella Q2 Earnings Top Mark, Fall Y/Y

Ambarella second-quarter fiscal 2020 earnings and revenues beat the Zacks Consensus Estimate.

However, on a year-over-year basis, both the top- and the bottom-line results witnessed a decline.

Ambarella’s revenues in the fiscal second quarter of $56.4 million surpassed the consensus mark of $52 million but declined 9.7% year over year. Solid demand for the company’s core video processing portfolio was a positive. However, sluggishness in the automotive market weighed on the top line.

The company’s non-GAAP earnings came in at 21 cents per share. The Zacks Consensus Estimate was pegged at 3 cents. However, the figure decreased 16% from the year-ago quarter.

Quarterly Details

During the quarter, automotive revenues remained flat and other product revenues decreased sequentially while revenues from security cameras increased.

Ambarella is experiencing strong underlying global demand for its security cameras. Some level of restocking by Chinese customers also boosted the security camera business.

However, challenging macroeconomic environment is severely affecting the company’s customer supply chain.

Ambarella’s CV portfolio is also attracting new customers and helping it expand customer base.

In the fiscal second quarter, the company had two 10% plus revenue customers. WT Microelectronics, a fulfilment partner in Taiwan, represented 55% of revenues while Chikoni, a Taiwanese ODM (original design manufacturer) came in at 21%.

Operating Metrics

On a non-GAAP basis, the company reported gross margin of 58.1%, which was 330 basis points below the year-ago quarter’s figure.

On a sequential basis, non-GAAP operating expenses came at $27 million compared with $29.9 million in the previous quarter.

Balance Sheet

Ambarella ended the fiscal second quarter with cash and cash equivalents & marketable securities of $375.8 million, up from $366.2 million in the previous quarter.

Outlook

For third-quarter fiscal 2020, revenues are expected between $63 million and $67 million. Non-GAAP gross margin is anticipated within 56-58%. Non-GAAP operating expenses are anticipated in the range of $30-$32 million.

The company envisions automotive, security and other revenues to increase sequentially. It predicts consumer electronics revenues to be persistently soft, declining as a percentage of revenues over the next two to three years.

Moreover, the company is focused on incorporating Big Data analytics in video HD endpoint devices and AI in security camera. This is expected to increase Ambarella’s total addressable market manifold.

Management expects to return to growth in the second half of 2019. However, global tariff issues, export restrictions and unfavorable macroeconomic conditions are some concerns.

How Have Estimates Been Moving Since Then?

Estimates revision followed an upward path over the past two months. The consensus estimate has shifted 23.33% due to these changes.

VGM Scores

At this time, Ambarella has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Ambarella has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.