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Ambarella Is Poised for Growth

May 08, 2014 | About:
shash63

shash63

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The wearable devices market has been riding high, enabling various tech companies engaged in manufacturing of wearable high tech products to grow. The companies are all set to gain from this market which is valued around $12 billion in the near future.

Companies like Ambarella (AMBA) are focused on this ubiquitous computing technology. The company has already established a strong foothold in high end cameras for home security, sports and automotive, and also concentrates on wearable cameras as a forward integration to its existing product line of cameras. Of late, Ambarella has been in the news for different reasons such as its synergistic business tie ups or innovative cameras for diversified applications.

Impressive Financial Performance

The company recently declared fourth quarter 2014 results and it did not let investors down. For the quarter, the company posted revenue of $40 million, up by 26.8% as against the same quarter the previous year. It ended fiscal 2014 on a higher note with total revenue of $157 million, up by 30.2% as against $121.4 for fiscal 2013.

The bottom line also recorded growth, with non-GAAP net income for the quarter being $8.2 million as against $5 million in the same quarter last year. Earnings for fiscal 2014 totaled $33.2 million as compared to $22.7 million in fiscal 2013.

The boost in the revenue was primarily due to strong sales of IP cameras and the various strategies of Ambarella which leveraged the growth in top and bottom lines. Demand for Ambarella’s IP cameras is also rising from the Chinese market, where the company foresees a huge potential in the future. The growing demand of IP cameras enables Ambarella to see constant growth in the long haul.

Growth Market

There is a paradigm shift from CCTV to high definition IP for various features enabled with IP cameras that were not featured with CCTVs. IP cameras are featured with high quality and high definition for a high resolution picture even in low light, which is far better as compared to CCTVs.

Ambarella’s automotive camera is a segment which has strong growth potential. Analysts foresee this market to grow at a CAGR of 34.55% over the period 2012 to 2016. Automotive safety systems are key for the growth of this market. The global automotive camera market has also been witnessing an increasing adoption of camera-based advanced driver assistance systems.

Although high cost of automotive camera-based systems can pose a stringent challenge to the growth, it is generally seen that the cost of tech devices does fall over a period of time. Ambarella does see positive growth from the automotive camera market, especially in regions such as Russia, China, Taiwan and South Korea. The Chinese market is still driven by demand for low-cost products, but with the transition to high definition, Ambarella’s prospects in China appear strong.

Furthermore, Ambarella’s home security Wi-Fi IP cameras and sports cameras are also gaining momentum. Home security equipment for homes of the future is another segment where growth potential exists. In the sports camera segment, Ambarella focused on releasing new models (GoPro’s HERO3+ Silver and Black camera editions). These new models will further boost the top and bottom lines of Ambarella. Also, Ambarella is working on wearable camera solutions for social and vertical market applications. It has successfully demonstrated its wearable camera reference for the Google (GOOG) Helpout app.

Valuation

With a strong product portfolio and focus on innovation of feature rich cameras, the company is expected to drive its business higher in the future. Market analysts anticipate the earnings of the company to grow by around 26.5% next year. The P/E ratio of the company is also expected to come down to 16.3; currently it stands at 28.4. The fall in the P/E suggests strong earnings growth for Ambarella.

Conclusion

Driven by the adoption of its solutions across different growing markets, especially wearables, Ambarella looks like a good long-term bet.


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