Canaccord: Ambarella Drone Revenue to Grow 10x in 3 Years

Matthew Ramsay at Canaccord Genuity upped the firm's price target for Ambarella Inc AMBA by 4.3 percent on expectations that the firm's revenue from drones will grow from $6 million in FY2015 to $50 million in FY2017. That corresponds to a doubling of the drone market in each of the next couple years – from 1.5 million in 2014 to 10 million in 2017. Further, Ramsay said that the opportunity is also high-margin, improving Ambarella's bottom-line even further.

Ramsay also was bullish on Ambarella's recent VisLab acquisition, arguing that the current "investments in video analytics … will prove undervalued long term." Further, the investments will "drive significant value and differentiation" and "will eventually prove [to be Ambarella's] most valuable." Over the long term, Cannacord said that home video and security, video capture applications, wearable cameras and automotive cameras will drive Ambarella's upside opportunities.

Canaccord's new $120 target is based on shares trading at 30x the FY2017 expected non-GAAP EPS of $4. Ramsay also said that the firm's "conviction" that the price target would be reached increased as a result of the latest analysis.

At last price, Ambarella is up 3 percent to $102.27. Since the middle of last month, however, shares came off sharply – falling 15.5 percent. Year-to-date, prices have still climbed nearly 100 percent.