Why $AMBA Dropped

Turnaround Essay

Ambarella recently came out with a report that made their stock go down which made my prediction correct. My main concern was the backlog they had due to the lockdowns in China combined with the high prices. While they were able to beat the estimates, they had really bad forward guidance. Sales beat expectations, they grew only 2% year over year. That was a big slowdown from the first quarter, in which Ambarella reported a much stronger 29% year-over-year growth. The company also warned that its revenue, which only barely beat expectations in the second quarter, will probably miss them in the third quarter. Management is forecasting third-quarter sales to be somewhere from $85 million all the way down to as little as $81 million. Given that Wall Street is expecting no less than $85 million, this works out to Ambarella promising a sales miss next quarter, and investors can't be too pleased to hear that. It is looking really bad for Ambarella, and GAAP earnings are also nowhere to be found. With the stock not expected to turn GAAP profitable before 2025, it's hard to justify Ambarella's current $70 stock price.