Here's why Ambarella will Keep Going DownAMBA) shares have been punished by investors ever since Citron Research released their report on the company. Citron gave Ambarella a long-term price target of $40, 66% lower than its share price back then, and it seems like the company is slowing inching towards that value. Ambarella has lost over 60% of its market cap in the last two months. And with GoPro’s growth slowing down, things don’t look good for the chip supplier going forward.
The chipmaker reported strong earnings in September, with revenue rising nearly 80% year-over-year to $84.2 million.
“As we discussed in our Q1 earnings call, wearable camera revenues are expected to be down sequentially and year-over-year, reflecting the substantial build of newly released and existing products in Q2 of this year by GoPro and Xiaomi, rather than in Q3 as occurred in the prior years.”
Investors’ fears were confirmed when GoPro reported weak earnings last week. GoPro’s shares tumbled almost 18% in after hours trading as the company missed the estimates on revenue and slashed its guidance for the coming quarter. GoPro guided Q4 revenue of $500M-$550M and EPS of $0.35-$0.45, well below a consensus of $690.5M and $0.82.
Evidently, the sales of GoPro’s cameras are slowing down, and this will ultimately have a negative effect on Ambarella. With GoPro’s moat fading, Ambarella will have to look for other revenue sources so as to keep their share price up. Much of the company’s present success is tied down to GoPro, so Ambarella’s short-term outlook looks bad. Even the insiders have started cashing in on the stock.
Day Christopher, a VP, Marketing at Ambarella sold 1,010 shares at $58.16 per share to trim the total holding at 8,445 shares. In addition, the institutional ownership in Ambarella has declined by almost 8% in the last six months. All signs point toward the fact that Ambarella’s best days are behind us, and the company’s share price may soon fall to under $40.
On the bright side, the recent crash does open up the opportunity for a takeover. With a market cap of roughly $1.6 billion, I believe Ambarella has fallen enough to become a takeover target. However, I won’t recommend investors to buy the stock just on the hopes of acquisition.
Ambarella has enjoyed great success due to its relationship with GoPro. But with GoPro’s fad dying, Ambarella will have a tough time going forward. GoPro’s declining sales confirmed investors’ fears regarding the company’s future and with no long-term catalyst in sight, I reckon investors would be better off selling Ambarella and waiting for a better entry point.
Published on Nov 10, 2015By Akshansh Gandhi