Ambarella (NASDAQ: AMBA) stock has ignited the market as its business has taken off thanks to the growing demand for security cameras and automobiles. Shares of the company, whose computer vision chips power these cameras, have nearly tripled in the past year, with its latest second quarter of fiscal 2022 results (released August 31) playing a big part in that. peak.
Ambarella crushed Wall Street estimates due to strong end market demand as well as the company’s entry into new markets. Let’s see what worked for Ambarella in the last quarter and see why it can replicate its tremendous stock market performance in the future as well.
Ambarella is on fire
Ambarella’s second quarter revenue increased 58% year-over-year to $ 79.3 million. Adjusted net income was $ 13.1 million, or $ 0.35 per share, a significant jump from the $ 2.1 million figure for the period a year earlier, or 0, $ 06 per share. Ambarella’s explosive profit growth was driven by a strong jump in the company’s margins. It announced a 450 basis point increase in its operating margin in the last quarter thanks to higher average selling prices.
Analysts expected Ambarella to earn $ 0.25 per share on revenue of $ 75.7 million. The good news for investors is that the company looks set to exceed expectations for a long time. This is clear from the company’s forecast which projects revenue of $ 90 million this quarter in the middle of the range, which is significantly higher than the $ 78.6 million sought by analysts.
It should be noted that Ambarella had generated $ 56.1 million in revenue during the period of the previous year, which means that it expects a 60% increase in its turnover from business this quarter. This would be an improvement over the company’s performance in the last quarter.
So what is driving such impressive growth for Ambarella, especially since she was struggling just over a year ago? Ambarella attributes its turnaround to the searing demand for camera chips. CEO Fermi Wang stressed on the latest earnings conference call that Internet of Things security cameras and automotive cameras are driving substantial growth for the company. These two apps generated around 90% of the company’s revenue in the last quarter. This bodes well for Ambarella as they are two fast growing niches that should ensure long term growth for the company.
Two big catalysts that could make the stock fly
The market for IoT-enabled security cameras is Ambarella’s biggest revenue stream right now. The company estimates that it will derive around 60% of its FY2021 revenue from this business.
Ambarella points out that more than 900 million security cameras were installed worldwide last year. However, most of them are older generation cameras that are either analog in nature (first generation) or network cameras that must be supervised by humans (second generation). Artificial intelligence-powered third-generation security cameras have now started to gain traction and present a great opportunity for Ambarella.
The chipmaker explains that security cameras are upgraded after four to six years. The first generation cameras are now being replaced and their market will continue to shrink. This bodes well for Ambarella as the chips used in a third-generation camera are twice as expensive as the previous generation, which is why the company saw an increase in the average selling price.
Third-party estimate points out that the IoT security camera market in Europe and North America could grow from 183 million units in 2019 to over 420 million units by 2024. Ambarella therefore has a huge opportunity to exploit and she does. make the most of it. The company reported several new design wins in the last quarter with customers such as Bosch, two new customers in China, a new customer in Canada, and several design wins for its latest generation chips which are currently in the sampling phase.
The automotive camera market, meanwhile, is expected to present a much larger growth opportunity for Ambarella. The company estimates that the automotive market could reach nearly $ 5 billion in a usable addressable market by fiscal 2026. This is not surprising as the number of cameras in cars is growing rapidly. Ambarella points out that there were an average of 1.5 cameras on each car in 2020. However, future vehicles would be equipped with double-digit cameras.
Ambarella is building a strong pipeline of winning designs to take advantage of the automotive camera market. At the end of October 2020, the company had a pipeline of $ 600 million in automotive design gains, 65% of which were already secured by Ambarella. The remaining clients were part of the tendering process. Now, Ambarella recently announced more wins in automotive design, so it’s likely that its design victory funnel has swelled further.
Terrific profit growth is in the cards
Overall, Ambarella appears well positioned to maintain its high levels of growth in the years to come, so it’s no surprise that its profits are expected to grow at a breakneck pace.
A compilation of analyst estimates indicates that Ambarella’s profits could grow at an exceptional rate of 82% per year over the next five years. This is a big improvement over the negative profit growth rate of 35% that Ambarella has recorded over the past five years, and paves the way for Ambarella to keep its rally hot and remain a top growth stock. plan for the future.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.