Stifel: Ambarella Has Catalysts Despite The Fall Of GoPro

• Ambarella Inc AMBA shares are down 37 percent in the last three months, and are trading significantly below their 52-week high of $129.19.
• Stifel’s Kevin E. Cassidy maintained a Buy rating on the company, with a price target of $115.
• Ambarella is likely to grow despite the decline of GoPro Inc GPRO, Cassidy said.

Analyst Kevin Cassidy wrote, “We view Ambarella's 3QFY16 earnings report as a positive catalyst for decoupling the AMBA shares from the GPRO shares.” He expects Ambarella to generate 20-25 percent revenue growth annually, with new video applications emerging.

Although the Sports Camera market propelled Ambarella's first wave of growth, Cassidy expects the IP Security market to drive the next wave of growth. “For longer term growth, management's current investment in analytics can move the company's technology into the automobile driver assistance market.”

Management guided to 40 percent y/y growth in total revenue in 3QFY16, despite including a y/y and q/q decline in Sports Camera/GoPro sales. Cassidy believes that the IP Security, Automotive, Drone and Wearable Camera markets have continued to grow in-line with expectations.

The analyst projected 25 percent revenue growth in FY17, which is ahead of consensus. He expects consumer home surveillance cameras, wearable cameras, automobile cameras and drones to drive this growth.

Management has been investing in its next generation of processors. “These 14nm products can move Ambarella further ahead of its competition in performance, energy efficiency and feature set,” the Stifel report stated.

Cassidy said that Ambarella’s shares are recommended since it is the leading supplier of video processors and analytics “in a world that is becoming more video centric.”