Is Ambarella Already Fully Valued?

The proliferation of smart devices and ubiquitous access to broadband connections are driving exponential growth in the capture, transmission, consumption and analytics of video content. One key analyst sees Ambarella Inc. (NASDAQ: AMBA) products as uniquely positioned to enable a new wave of professional and consumer devices to capture and stream high-quality video with real-time analytics. However this is a somewhat neutral view.

Oppenheimer initiated coverage of Ambarella with a Perform rating and no price target. The firm sees Ambarella as one of the best pure-play investments in a future of computer vision and intelligent image- capturing devices. However, it believes the risk-reward profile is balanced for now, considering the unfavorable outlook for major end markets in the near term, timing uncertainty for the market trends that support its future growth and what Oppenheimer sees as a fair valuation.

Ambarella provides the highest-performance video processing systems-on-chips with the lowest power consumption, according to its management. The company’s proprietary video processing architecture and deep domain expertise in video processing and delivery make the company the go-to high-end solution provider in markets such as IP camera, wearable camera, drone camera and automotive dashboard cameras.
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The brokerage firm sees intelligent video processing becoming the must-have feature across multiple end markets, a trend from which it believes Ambarella is well positioned to benefit. However, Oppenheimer sees near-term interruptions from the action and IP camera markets, which are 70% of revenues. This prompts a reset of the long-term growth outlook with more conservative assumptions.

In its report Oppenheimer detailed:

Ambarella may find significant future growth from a number of verticals such as drones, automotive OEMs, and the Internet of Things. But we believe the timing of these markets’ inflection points is more than a few quarters away as all participants are still exploring and developing clear business models and sustainable growth of revenues and profits.

Shares of Ambarella were trading at $44.73 on Friday, with a consensus analyst price target of $57.55 and a 52-week trading range of $33.39 to $129.19.