Ambarella's Underlying Markets To Produce Volatility Near Term, Oppenheimer Warns

"We reiterate our Perform rating on AMBA. We like it as the market leading, pure-play investment that is positioned to benefit from secular growth in demand for analysis of image data. But the two largest underlying markets for AMBA, IP camera and action camera, are likely to provide undesirable volatility in the near term," analyst Andrew Uerkwitz wrote in a note.

Guidance And Analyst Justification

Ambarella reported better-than-expected quarterly results, with revenues/EPS of $65.1 million/$0.54 versus the Street's $64.3 million/$0.38 and Oppenheimer's $63.4 million/$0.34.

Related Link: Canaccord Lifts Ambarella Price Target From $65 To $85, Expects GoPro Sales Recovery

The company expects third-quarter revenues of $95 million–$99 million, non-GAAP gross margin of 63.5–65 percent. The company also reiterated FY17 annual revenue guidance, expecting it to be flat to down 5 percent year-over-year.

In addition, the analyst raised his FY17 revenues/non-GAAP EPS slightly to $308.7 million/$2.52 from $305.6 million/$2.23, reflecting better-than-expected second-quarter results and third-quarter guidance.

That said, Uerkwitz noted that margins would be pressured by the recovery of low-end IP camera business in China and higher growth of consumer IP camera, while the automotive market is seeing industry-wide weakness.

Shares of Ambarella closed Thursday's regular trading at $71.78. In the pre-market hours, they fell 2.69 percent to $69.85.

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