Expect The Drag On Ambarella To Continue Until GoPro Offers Visibility Of Consumer Segment Turnaround

• Ambarella Inc AMBA shares have lost 20 percent so far in 2016.
• Chardan Capital Markets’ Marc Estigarribia maintained a Neutral rating for the company, with a price target of $90.
• The company’s shares could come under pressure due to the huge miss preannounced by GoPro Inc GPRO.

GoPro preannounced its 4Q15 results significantly short of expectations. The company now expects revenues of $435 million, which is 16.5 percent below consensus. Slower sell through at retailers, combined with price cuts from the HERO4 products, resulted in the miss. GoPro’s revenues are down 31.4 percent YoY, although there is 8.7 percent sequential growth.

Related Link: Chowdhry: GoPro Is 'Declining Asset Business,' No One Would Touch In M&A

GoPro also guided to FY15 revenues of $1.6 billion, 5.4 percent below expectations, and up 14.3 percent YoY. The company’s shares plummeted 25 percent after market close. “As the market continues to slaughter GPRO, AMBA continues to correlate downward,” analyst Marc Estigarribia wrote.

Ambarella had indicated weakness in its Wearables Sports segment, around 30 percent of which is contributed by GoPro. The softness resulted from the inventory glut continuing in 1H16. The company also reduced its top line guidance to 15-20 percent. Estigarribia believes that this drag would continue until the company’s Consumer segment provides visibility into a stabilization or a turnaround.

The analyst commented, “CES 2016 provided AMBA with an opportunity to break free from the GPRO effect.” He said that management’s presentation of new IP and innovative products was impressive, citing Ambarella’s H2/ H12 chips, MotorVu 3D 360-degree Surround View electronic mirror solutions and low power S3L solutions for cloud-based home monitoring and professional IP cameras.