Ambarella (AMBA, Financial) released strong results for the second quarter of fiscal 2015. The company is delighted with strong results and is now expecting a better performance in the future. The robust increase in the top line and earnings reflects good roll out of its HD and Ultra-HD camera solutions.
Results and growth drivers
The company is now counting on the growing IP security camera market and is planning to stretch its footprint in this potential market. Besides this, the growth in the UAV and wearable camera market is giving more opportunities to the company to tap the market in future. Let us have a closer look at the overall business of Ambarella.
Ambarella’s revenue grew by 24.6% to $47 million from $37.7 million which it posted a year ago. The company further posted non-GAAP net income of $11.9 million which again is better than $7.7 million which it posted last year in the same quarter. Moreover, the gross margin of the company also improved to 64% as compared 62.9% in the same quarter last year. On the earnings front, Ambarella posted EPS of $0.37 per share topping analysts’ estimates of $0.28 per share.
The camera market is booming, and it is creating good demands for higher resolution and higher-featured cameras in the professional camera market. In addition, it is also seeing rapid growth in demands for cloud based home monitoring and security cameras. All these are good signs for strong growth in the IP security cameras giving Ambarella good opportunities to drive its financial performance further. To capture this opportunity, Ambarella is bringing in new cameras in areas such as automobile and home security. In the sports segment, GoPro is highly successful camera and it is now new versions of Hero 3-Plus.
A closer look at the catalysts
It is expecting a lot from S2L IP camera SoC family which the company introduced during ISC West Exposition. The latest cameras coming in the market are utilizing Ambarella’s its S2 camera SoC technology. In addition, the 4K capabilities enabling 180 degree or 360 degree panoramic viewing is gaining good traction the market and with new cameras including this technology are expected to improve sales of the company leading to good market position of Ambarella.
With the revolution in the IT sector, people are now keener for home security and IP security. As Ambarella is seeing growing demands for home monitoring and security IP cameras. The most attractive feature of these is the cloud-based video storage and remote viewing which is now easily done using smartphones or tablets. Ambarella is also pleased with a strong position of its cameras in the market and with the growing demands in these two sectors, Ambarella is expecting good opportunities in this market in the future in U.S and Europe majorly.
Moreover, the growing demands in the market for HD video remote monitors Ambarella is seeing bright opportunities. The company is confident to meet the growing demands as it seems well positioned to supply the demands. In addition, Ambarella finds good opportunities in wearable police camera. This is because these cameras supports continuous video recording of events which also offer protection and documentation for police as well as public. In this league, Ambarella’s A7LW SoC solution is seeing good traction due to its low power operation and extended battery life.
Conclusion
Now moving to the fundamentals of the stock, with a trailing P/E of 42.06 the stock looks slightly over valued but the forward P/E of 25.75 shows good growth in the earnings at these valuation levels. The stock can also be a good long term holding as its earnings are growing at a CAGR of 21.60% which is better than the industry average of 13.69%. All these statistics show that the stock is a good pick and the investors should not mind heavy premium for the stock as its prospects looks strong with impressive earnings growth in long term.
