GoPro Weakness Weighs On Ambarella Outlook

Shares of

Ambarella IncAMBA

plunged more than 20 percent Friday morning and hit a new 52-week low of $42.55 after the component maker for action camera and

drones reported its second-quarter results. Deutsche Bank's Ross Seymore maintains a Hold rating on Ambarella's stock with a price target lowered from $54 to $49 as the company's second quarter earnings report was relatively in line with expectations but guidance was worrisome. Ambarella guided its full fiscal year 2018 revenue to be lower by at least 3 percent and as much as 7 percent, which marks a drop from the company's prior guidance of negative 3 to positive 3 percent growth, Seymore commented. The guidance implies a 21 percent quarter-over-quarter decline in fourth-quarter revenue, likely due to weakness at its client GoPro Inc GPRO and the overall drone segment.

However, the bearish case for Ambarella's stock isn't set in stone just yet, the analyst suggested. Investors do have reason to be optimistic about Ambarella's upcoming Computer Vision chips but shouldn't expect any meaningful revenue ramp until at least fiscal 2020.

Bottom line, investors may want to consider staying on the sideline during this "transition period" as the near-term outlook is plagued by volatility and elevated investments.

At time of publication, shares of Ambarella were down 21.55 percent at $42.67. GoPro shares were relatively flat, up 0.65 percent at $9.27.