$AMBA Q3 2022 Earnings Report

$AMBA Short

Ambarella is a semiconductor company that develops solutions for video compression and image processing. Its products are used in cameras in cars, for security, industrial applications, drones, and in virtual reality products. For this year, expectations are low with revenue growth of 6%, with a decrease in profitability as the company continues to increase spending. They also have a revenue growth expectation of 24% for next year which I find very high and also expect them to lower this. The company’s recent results for the first quarter were able to beat expectations, but its guidance for the next quarter was weak, with the company blaming lockdowns in China. The stock was at about the $60 level for many years until it started going up towards the end of 2020 as the company showed good revenue growth. Then it took off in 2021 along with other semiconductor stocks, more than doubling during the year, reaching a peak of a little above $200. This year, it is down more than 60% as the company’s growth is projected to decline and deliver poor earnings quality. Additionally, Ambarella has the weakest profitability among its competitors as evidenced by its forward-looking estimates. Based on Wall Street's consensus financial projections obtained from S&P Capital IQ, Ambarella is forecasted to meet the company's first key sales milestone ($500 million) in 2025 which is very far away and that’s assuming there will be no headwinds on the way. At the same time, most investors wouldn’t want to make an investment for this long and would rather wait a couple more years before making their decision. At the same time, during the last quarter, the CEO had this to say: “the pandemic took over China and the resulting lockdowns that disrupted customer production schedules and orders placed on us, as well as logistics in the greater Asia supply-chain. A majority of our customers' products are manufactured in this region and are subject to impacts from China-related supply-chain disruptions. We are seeing a similar degree of impact across both our automotive and IoT businesses, further complicating the pre-existing kitting issues we have discussed before.” Ambarella also didn't provide any update on the auto tech backlog, but the company previously guided to a massive backlog of $700 million which could now be up to $1.1 billion. What makes me skeptical about how this company will do is the ease of lockdowns in china. Currently speaking, all of Ambarella’s factories are opened and have started working on the backlog, however, I don't know if these three months have been enough for them to compensate for the revenue they lost while their factories were closed. The company hasn’t mentioned anything on this topic and they could surprise everyone this quarter by saying the backlog has now been cleared because many workers in China have been working overtime after the lockdown. Taking a look at what other big competitors have reported, all of them met the estimates, however, they also lowered their guidance for the year. But these don’t necessarily provide any information on how the stock will do as some of them went up while the other ones went down, based on how their investors reacted. For example, MRVL stock dropped 8.9% recently due to their revision even though they had met all of the estimates. Looking at the CEO’s statement shows how sensitive the stock market is. "This was the ninth straight quarter of sequential revenue growth, and we are guiding for growth to continue in the third quarter, as we expand our leadership in data infrastructure," looking ahead, we expect sequential revenue growth to accelerate in the fourth quarter as supply constraints begin to ease." Ambarella is one of the last semiconductor stocks to report results during this earnings season. On Wednesday, Nvidia met expectations for its fiscal second quarter but guided much lower for the current period. Nvidia expects its video game chip business to remain weak in its fiscal third quarter. Last week, Analog Devices and Wolfspeed posted better than expected quarterly results. Analog Devices delivered 47% profit growth and a 77% sales spike, but also noted some weakness ahead that caused their stock to go down by around 5%. Wolfspeed on the other hand, with growing exposure to the electric vehicle market, crushed estimates with a 57% sales gain and strong guidance that made their stock go up 35% so it could go both ways for Ambarella depending on how investors react. Market Cap:3,163,206,230 P/E Ratio:-63.59 Initial reaction:Short Researched reaction:Short CEO: Time:After close Estimate:-10%