Deutsche Bank Cuts Ambarella Outlook On 'Weak' GoPro Environment

Deutsche Bank has trimmed its outlook and price target on Ambarella Inc AMBA due to weak forecast from its key customer GoPro Inc GPRO.

Santa Clara, California-based Ambarella, which makes HD video processing chips, will announce its fourth-quarter financial results on March 3. Wall Street analysts, on average, expect earnings of 48 cents a share on revenue of $66.09 million for the fourth quarter.

Shares of Ambarella have dropped 20 percent this year, mainly due to the weak pre-announcement from GoPro, which, in early February, had guided first quarter sales of $160 million–$180 million versus estimates of $300 million.

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The weak environment at GoPro is expected to hurt Ambarella sales for the fourth quarter and beyond. Deutsche Bank analyst Ross Seymore has cut his fourth-quarter EPS view by a penny to 49 cents and revenue outlook by $2 million to $65 million, the low end of company guidance ($65 million–$67.5 million range).

"With no sufficiently large offsets likely, GPRO's weakness should adversely affect AMBA's F4Q16 and CY17 top-line growth in our view, a potential inflection point in the co's stellar beat-and-raise track record (beat high-end of guide 10 of last 11 qtrs)," Seymore said in a note to clients.

Justification For Cuts

Meanwhile, Ambarella had suggested that sports camera inventory burn is likely to impact its first quarter results as well. Exacerbated by GoPro weakness, this inventory dynamic leads the analyst to slash his first quarter revenue estimate by $5 million to $62 million and EPS by 4 cents to 45 cents.

Seymore also trimmed his 2016 revenue view to $336 million from $363 million and EPS to $2.85 from $2.95. Analysts' consensus estimate stands at EPS of 40 cents a share on revenue of $63.14 million for the first quarter and $3.12 a share on revenue of $313.79 million for the full year.

"Still, we laud AMBA's overall solid execution and believe it well poised to capture future growth opportunities that could further play out in CY17 and beyond (e.g., Auto, Drones, Home Security), the analyst added.

Though Seymore said Ambarella's long-term secular growth drivers remain intact, he lowered his price target on the stock by $10 to $50 on the company's significant near-term pressures. Seymore has a Hold rating on Ambarella stock, which trades 14.4 times its 2016 consensus EPS estimate.