Ambarella (AMBA), the video processing chip company, is set to announce earnings for its April quarter after the close of trading this Thursday, June 2.
Wall Street analysts are expecting the company to report first-quarter earnings of 27 cents a share on revenues of $56 million for the quarter. For the July quarter, the estimates increase to earnings of 45 cents a share on revenues of $68.4 million. Finally, for the fiscal year ending January 2017, the sell-side expects earnings per share of $2.35 on revenues of $309 million. Current estimates for the fiscal year are heavily back-loaded and understandably so, considering that the company's October quarter is its bread-and-butter one.
In the last four quarters, Ambarella has managed to beat earnings estimates by an average of 22%. However, the shares still are languishing at the bottom of their 52-week range and are off about 68% from AMBA's 52-week high of $129 made last July. To make matters worse, the shares are off 26% year to date as the company got caught up in the double whammy of the decline in GoPro's (GPRO) fortunes and the beat-down that occurred in the semiconductor supply chain.
Like the massive bet that GoPro has made on its soon-to-market drones, Ambarella also has bet big on supplying the chips that will go into high-end videos used in consumer and commercial-grade drones.
PricewaterhouseCoopers LLP has estimated that the market for drones could increase from $2 billion currently to $127 billion over the next four years. If that forecast comes close to even being half-correct and Ambarella can take a mere 1% of that expected windfall, AMBA could see a huge change in its fortunes, as would its shareholders.
In addition, there has been chatter that Ambarella is the supplier of chips that go into the cameras that are used in the drone manufactured by two of the world's largest drone makers -- SZ DJI Technology (one of the largest China-based unicorns) and Yuneec, which is financed by none other than Intel (INTC).
Is this the quarter that Ambarella shows a turnaround in its forward prospects, or will shareholders experience another disappointment in the near term? That's the $64,000 question.
Admittedly, I am hurting in my long position in Ambarella despite almost weekly covered call sales. Still, I think after almost a year of getting battered and Ambarella repeatedly reporting declining revenues and earnings quarter over quarter, a change for the better and brighter could be just around the corner for shareholders.
Good luck, however, if you are positioned going into Ambarella's earnings report long or agnostic.