Despite Earnings Beat, Ambarella (AMBA) Stock Tumbles On Weak Guidance

Shares of semiconductor maker Ambarella Inc. AMBA fell nearly 10.5% in morning trading today after the company released its third-quarter earnings report on Thursday. Although it did beat on both the top and bottom lines, Ambarella disappointed investors with its sluggish guidance.

For the third quarter, AMBA posted earnings of 84 cents per share, which beat the Zacks Consensus Estimate of 68 cents per share handily. The company saw revenue figures of $100.5 million, which also beat our consensus estimate of $96 million. Total revenue was up 7.8% year-over-year.

Looking ahead to Q4, Ambarella expects revenue to be in the range of $84 million to $87 million. This comes in below our current consensus estimate of $88.43 million. The company noted that limited sales visibility and potentially high chip inventory levels were the reason for its caution.

It’s also important to note that Ambarella still brings in about 30% of its revenue from GoPro GPRO. Most investors will already be aware of the struggles faced by that company, but in case you didn’t know, shares of GPRO are nearly 45% as demand for its action cameras continues to slip.

For now, Ambarella remains a Zacks Rank #3 (Hold), and its relatively weak guidance is unlikely to spark much upward estimate revision activity. What was once one of the market’s hottest stocks has become volatile and risky, and that may take AMBA out of play for many investors.

Nevertheless, the Electronics – Semiconductors business remains in the top 13% of the Zacks Industry Rank, which means that some of Ambarella’s peers may still be solid picks. Investors should check out Amkor Technology AMKR, Applied Optoelectronics AAOI, Cirrus Logic CRUS, NVE Corp NVEC, and On Track Innovations OTIV. All of these stocks currently hold a Zacks Rank #1 (Strong Buy).

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