Morgan Stanley Sees 'Minimal' GoPro Risk To Ambarella

Morgan Stanley’s Joseph Moore maintained an Equal-weight rating for Ambarella Inc AMBA, while reducing the price target from $56 to $55, after the company announced disappointing guidance for 1Q on more sluggish sports and a seasonally slower IP security market.

Ambarella reported its 4Q revenues marginally ahead of expectations, but its EPS was disappointing. While the company’s new growth categories showed impressive growth, it was not enough to offset the loss of GoPro Inc GPRO, analyst Joseph Moore mentioned.

While the performance of consumer security, automotive, drones, and professional wearable cameras continued to be robust, these would unlikely be able to offset the substantial decline in wearable sports revenue from GoPro over the next two quarters, Moore said, while adding that GoPro related revenues could be zero in the April and July quarters.

The analyst expects Ambarella’s gross margins to be under pressure due to the shift in product mix to lower margin China and IP security markets, which now constitute about 40 percent of total revenues. The company has projected gross margin contraction from 65.9 percent in C3Q15 to 61.5 percent in C1Q16.

“We continue to think that the company's position in its core markets remain strong…The GoPro risk is reduced with essentially zero revenue expected for the next six months, and a likely refresh of those products around year end,” Moore wrote.