Ambarella (AMBA) Q2 Earnings: Is Disappointment in Store?

Ambarella Inc. AMBA is slated to release second-quarter fiscal 2019 results on Aug 30.

Notably, Ambarella beat estimates in the trailing four quarters, with an average positive surprise of 21.6%.

In the last reported quarter, the company posted mixed results, wherein earnings surpassed the Zacks Consensus Estimate but revenues marginally fell short of the same. Moreover, on a year-over-year basis, its top- and bottom-line registered decline.

For second-quarter fiscal 2019, revenues are expected between $60 million and $64 million (mid-point $62 million), down 10.6-16.2% from the year-earlier quarter.

The Zacks Consensus Estimate for the quarter under review is pegged at earnings of 13 cents, which reflects a year-over-year decline of 72.9%. Additionally, the consensus estimate for revenues is $62.3 million, indicating 13% decline from the year-ago quarter.

Ambarella, Inc. Price and EPS Surprise

Ambarella, Inc. Price and EPS Surprise | Ambarella, Inc. Quote

So, let’s see how things are shaping up prior to this announcement.

Key Factors

Ambarella is well known for its market leading high performance video processing system on a chip (SoCs), which consume the lowest power in this space, providing it a cost and power advantage over its rivals. The company is benefiting from automotive and IP security markets which, per management, represent a large and expanding opportunity.

However, the company is hurt by considerable decline in revenues from the drone market. Per the company, drone manufacturers have been witnessing a tough time and its major clients are now shifting focus on building low-priced drones. Moreover, weakness in sports and the VR camera markets poses significant concern.

The company anticipates GoPro GPRO revenues to be insignificant to the soon-to-be-reported-quarter. Moreover, the trade war between the United States and China is a significant risk for the company’s growth prospects.

Furthermore, increase in China security revenues and decline in drone revenues are anticipated to impact margins negatively. Increase in operating expenses due to “increased chip tape out fees and engineering headcount” will remain an overhang.

What Our Model Says
    
According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or #5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ambarella currently carries a Zacks Rank #3 but has an Earnings ESP of -5.92%.

Stocks With a Favorable Combination

Here are two companies, which, as per our model, have the right combination of elements to post an earnings beat this quarter:

Entegris, Inc. ENTG has an Earnings ESP of +0.51% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

SCIENCE APPLICATIONS SAIC has an Earnings ESP of +1.70% and a Zacks Rank #3.

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