Why Is Ambarella (AMBA) Up 9.9% Since Last Earnings Report?

A month has gone by since the last earnings report for Ambarella (AMBA). Shares have added about 9.9% 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 drivers.

Ambarella Q3 Earnings Top Mark

Ambarella’s third-quarter fiscal 2020 earnings of 32 cents per share beat the Zacks Consensus Estimate by 52.4% and also the year-ago figure by 22.2%.

The company’s revenues in the fiscal third quarter of $67.9 million surpassed the consensus mark of $65 million and also increased 18.6% year over year. Its transition to a video AI company is a tailwind. Ramping up of production shipments in the automotive and security camera market is a key driver.

Ambarella’s CV portfolio is also attracting customers and helping it expand the client base. During the quarter, the company shipped pre-production parts and development systems to more than 50 customers.

Operating Metrics

On a non-GAAP basis, the company reported gross margin of 58.1%, which was 280-basis points below the year-ago quarter’s figure. Richer mix of automotive business in both OEM and aftermarket business is a positive.

Sequentially, non-GAAP operating expenses came in at $29.3 million compared with $29.7 million in the previous quarter.

Balance Sheet & Cash Flow

Ambarella ended the fiscal third quarter with cash and cash equivalents & marketable securities of $400.8 million, up from $375.8 million in the previous quarter.

The company generated operating cash flow of $21.9 million during the quarter.

Outlook

For fourth-quarter fiscal 2020, revenues are expected between $55 million and $59 million. Non-GAAP gross margin is anticipated within 56.5-58.5%. Non-GAAP operating expenses are estimated in the range of $29.5-$31.5 million.

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

However, global tariff issues, export restrictions and unfavorable macroeconomic conditions are bothersome.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 20.27% due to these changes.

VGM Scores

Currently, Ambarella has a strong Growth Score of A, a grade with the same score on the momentum front. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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.

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