HomeInvesting NewsReasons for Today's 15% Drop in Ambarella Shares

Reasons for Today’s 15% Drop in Ambarella Shares

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Ambarella (NASDAQ:AMBA)

Ambarella (NASDAQ:AMBA), a manufacturer of high-definition video-specific semiconductor chips, saw its stock price drop 15.4% on Wednesday as of 10:20 AM ET, despite reporting higher-than-expected revenue and profits for the company’s fiscal second quarter of 2023.

For the current quarter, investors were expecting Ambarella (NASDAQ:AMBA) to post a pro forma profit of $0.19 per share on revenue of $80.2 million. Ambarella surpassed expectations in revenue and earnings this morning, reporting $0.20 per share on $80.9 million in revenues.

What’s the Reason?

Still, the reaction on Wall Street was negative. The news apparently caused four analysts to reduce their price targets for TheFly, with one full downgrade coming from Summit Insights. Then what exactly did Ambarella say that caused such concern?

Although sales were more than anticipated, the increase was less than 2% compared to the previous year. This was a significant drop compared to the first quarter when Ambarella (NASDAQ:AMBA) recorded a significantly more remarkable 29% year-over-year growth. While Ambarella’s pro forma earnings were better than expected, the company nevertheless lost $0.62 per share using GAAP accounting (GAAP).

Compared to the company’s second-quarter loss a year ago, that was a whopping three times as bad.

What’s Next?

Ambarella (NASDAQ:AMBA) said that revenue surpassed projections in the second quarter and is expected to fall short in the third. Management expects third-quarter revenue to be between $85 million and $81 million. Investors likely won’t be happy to hear that Ambarella expects to miss next quarter’s sales target of $85 million, given the high expectations of Wall Street.

Ambarella’s revenue picture is worsening rapidly, and the company is not making any money by GAAP accounting standards. Ambarella (NASDAQ:AMBA) is experiencing its own problems independently of the broader collapse of the semiconductor business. Ambarella’s stock is currently trading at over $70, yet the company is not expected to become GAAP profitable until 2025 (and even then, it is only predicted to make $0.51 per share).

Ambarella (NASDAQ:AMBA) still appears to be a sell to me, even after today’s drop in price.

Featured Image – Megapixl © Andreistanescu 

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