Ambarella (AMBA, Financial) develops semiconductor processing solutions for video that enable high-definition, or HD, video capture, sharing, and display. The company sells its solutions to original design manufacturers and original equipment manufacturers through its direct sales force and logistics providers. The stock has been on the move and it has gained around 40% year-to-date, and it is trading around 5% lower than its 52-week high. During the past year, the stocks have outperformed NASDAQ by a margin of over 10 times – 196% versus 19.3% gains.
Looking back
The fourth-quarter 2015 and full year results were declared in March. During the quarter, the revenues moved up 61.9% year-over-year to clock $64.7 million. Fiscal 2015 revenues came in at $218.3 million versus $157.6 million for fiscal 2014, representing a year-over-year gains of around 38%.
The strong top-line growth was fueled by strong sales from traditional markets including wearable, professional IP camera and automotive aftermarket cameras. In addition, the company witnessed growth opportunities in new camera applications.
The fourth quarter witnessed a robust growth in professional IP security camera business with a strong growth in China, driven by market leaders Hikvision and Dahua, registering almost 100% growth year-over-year.
In addition, the demand for wearable camera was led by GoPro and its successful HERO4 Silver and UltraHD HERO4 BLACK models. In addition, Xiaomi launched its Xiaoyi Sports Camera based on Ambarella's A7L SoC, featuring host of features like 1080p60 video recording, wide-angle video capture and wireless connectivity to smartphones and applications.
Growth drivers
The IP video surveillance camera market is slated to grow at a robust CAGR of 23% from 2013 to 2017. The unit shipment of IP security cameras was the highest in the fourth quarter and the momentum is expected to continue going forward. In addition, the home security systems market will gradually transition from 780p to 1080p resolution as the leading players try to differentiate their product based on video quality and advanced features, such as analytics and wide angle viewing. In addition, the analog CCTV cameras continue to be replaced with IP cameras.
At CES, Ambarella demonstrated dash cameras with advanced analytics for the automotive aftermarket, including 360 degree surround view cameras and, for the first time, electronic mirror solutions. The electronic mirror solutions, based on Ambarella’s A9 camera SoC, are aimed at replacing the conventional RVM and ORVM in an automobile with externally mounted cameras and LCD screen. This will be a good growth driver going forward.
New retail customers using Ambarella products entered the market, including KINLee, ION and iLuv. Also, ASUS launched its STRIX car camcorder model offering Full HD recording, High Dynamic Range image processing and wide 140 degree viewing angle. This is based on Ambarella's A7L SoC.
The growth in automotive aftermarket is expected to sustain momentum going forward. According to Statista, it is expected that light vehicle sales will touch 100 million units by 2017, with United States and China being the leading markets in this area. Therefore, the demand from the car OEM in Asia, Europe and North America will also drive growth as they begin to integrate video recorders into new car models.
Looking ahead
For the first-quarter fiscal 2016, the revenue is expected to be in the range of $64 million to $68 million, representing a year-over-year growth of 56% to 66%. The camera revenues are estimated to be 94% and 96% of total revenue versus 90% in the year-ago period, primarily driven by new products like new S2Lm SoC in the security market as well as introductory products from new customers like Xiaomi and strong demand from automotive segment, wearable cameras and IP cameras.
Final words
Analysts expect the company to grow at a CAGR of 20% for the next five years. The company has been consistently delivering positive earnings surprises and the operating profit for 2016 is expected to settle in the high 20% range. The trailing P/E is close to 47 and forward P/E is expected to be around 26, signifying growth going forward. Hence, it’s a good stock to hold for the long-term.
