Will Dismal Drone Market Mar Ambarella (AMBA) Q3 Earnings?

Ambarella Inc. AMBA is slated to release third-quarter fiscal 2018 results on Nov 30. The question lingering in investors’ minds is whether this chip manufacturer will be able to post a positive earnings surprise in the to-be-reported quarter. Notably, Ambarella has delivered positive earnings surprises over the trailing four quarters, with an average of 13.9%. So, let’s see how things are shaping up prior to this announcement.

What to Expect?

The Zacks Consensus Estimate for the quarter under review is pegged at 66 cents, representing a year-over-year plunge of 40.2%. Additionally, analysts polled by Zacks project revenues of roughly $89 million, down 11.5% from the year-ago quarter.

What’s Behind the Dismal Projection?

The company, during its Q2 earnings conference call, had noted that a “substantial decline in GoPro revenues and a moderate decline in the drone market” will adversely affect its next quarter’s top-line performance.

Notably, GoPro GPRO is its largest customer which had accounted for approximately 19% of fiscal 2017 revenues. It used to buy video-processing chips from Ambarella for its action cameras. However, since the beginning of fiscal 2018, GoPro has been purchasing these chips from one of Ambarella’s competitors. This will hurt Ambarella’s shipment volumes, resulting in revenue decline in the fiscal third quarter.

Furthermore, lingering weakness in the drone market has been denting this chip maker’s revenues. The company has witnessed two back-to-back quarters of decline in this market. Moreover, Ambarella projects softness in the drone market to persist throughout fiscal 2018.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Ambarella is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Ambarella currently carries a Zacks Rank #3 which increases the predictive power of ESP. However, the company has an Earnings ESP of -0.57%. The combination of Ambarella’s Zacks Rank #3 and negative Earnings ESP makes surprise prediction difficult.

Ambarella, Inc. Price and EPS Surprise

Ambarella, Inc. Price and EPS Surprise | Ambarella, Inc. Quote

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Pure Storage, Inc. PSTG has an Earnings ESP of +18.52% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nutanix Inc. NTNX has an Earnings ESP of +1.42% and a Zacks Rank #3.

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