Ambarella’s (AMBA) Q2 Earnings & Revenues Beat, Fall Y/Y

Ambarella Inc. AMBA reported second-quarter fiscal 2019 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate.

However, on a year-over-year basis, its top- and bottom-line results registered a decline mainly due to an expected fall in chip sales to GoPro Inc. GPRO, along with the prevalent softness in the drone market. Earnings were also affected by elevated operating expenses.

The top line, however, was within its previously projected range. The company had expected GoPro revenues to be insignificant in the fiscal second quarter with a decline in revenues from non-GoPro sports cameras and wearbles, particularly in the second half of the fiscal. The company had also predicted that the considerable decline in revenues from the drone market will adversely impact the quarter’s top-line performance.

On per-share basis, the company’s non-GAAP earnings came in at 25 cents, witnessing a substantial decline from the year-ago quarter’s level of 48 cents. The fall resulted from lower revenues and elevated operating expenses. However, the figure topped the Zacks Consensus Estimate of 13 cents by a considerable margin.

Notably, the stock has underperformed the industry on a year-to-date basis, losing 32.4% compared with the industry’s decline of 1.5%.

Quarter in Detail

The company’s fiscal second-quarter revenues slipped 12.8% year over year to $62.47 million. However, quarterly revenues topped the Zacks Consensus Estimate of $62.27 million. The company’s revenues came a little higher than the mid-point of management’s guided range of $60-$64 million.

On a non-GAAP basis, the company reported gross margin of 61.4%, which came in 160 basis points lower than the year-ago quarter.

Non-GAAP net income plunged to $8.5 million from $19.3 million reported in the year-ago quarter.

Balance Sheet

Ambarella ended the fiscal second quarter with cash and cash equivalents & marketable securities of $376 million, down from $414.1 million recorded in the previous quarter.

During the reported quarter, the company bought back 1,119,193 shares, for a total cash consideration of $45 million approximately. Since the inception of its share-repurchase program on Jun 5, 2018, the company has bought back a total of 862,805 shares for a total consideration of $33.9 million approximately.

Guidance

For third-quarter fiscal 2019, revenues are expected between $55.5 million and $58.5 million (mid-point $57 million). The guidance is lower than the Zacks Consensus Estimate of $73.8 million.

Non-GAAP gross margin is expected between 59% and 60.5%.

Non-GAAP operating expenses are estimated in the range of $30.5-$32 million.

Zacks Rank & Stocks to Consider

Ambarella currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader Computer and Technology sector are Virtusa Corporation VRTU and Fortinet, Inc. FTNT, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Virtusa, Qualys and Fortinet is projected to be 20% and 16.8%, respectively.

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