California-based Ambarella (AMBA) makes advanced vision processors that power various applications in automotive, security, and industrial systems. It recently acquired Oculii Corp., a provider of high-definition imaging radar technology.
Ambarella’s earnings report shows revenue increased 64% year-over-year to $92.2 million in Fiscal Q3 2022 ended October 31, exceeding the consensus estimate of $90.4 million. It posted adjusted EPS of $0.57 versus $0.09 in the same quarter last year and beat the consensus estimate of $0.49.
Ambarella ended Q3 with $457.8 million in cash and recently used $307.5 million to finance the Oculii acquisition.
For Q4, the company anticipates revenue in the band of $88.5 million to $91.5 million, compared to the consensus estimate of $88.2 million.
With this in mind, we used TipRanks to take a look at the newly added risk factors for Ambarella.
Risk Factors
According to the new TipRanks Risk Factors tool, Ambarella’s top risk category is Finance and Corporate, representing 26% of the total 69 risks identified for the semiconductor stock. The company’s next major risk categories are Production, and Legal and Regulatory, accounting for 20% and 17% of the total risks. Ambarella recently updated its profile with four new risk factors.
In a newly added Finance and Corporate risk factor, Ambarella cautions that it may not achieve the anticipated benefits of the Oculii acquisition. It mentions that achieving the expected benefits will depend on the successful integration of the business. However, given that Ambarella and Oculii have historically operated as independent companies with different technologies, procedures, and cultures, the integration process may be complex and require significant effort and resources.
Further, Ambarella cautions that some of its customers and suppliers may stop doing business with it or seek to change the terms of their engagement because of the acquisition. Additionally, Ambarella warns that if its due diligence failed to identify all of Oculii’s shortcomings, it may face lawsuits or regulatory actions if liabilities that it had not taken into account are discovered.
Ambarella informs investors in a new Legal and Regulatory risk factor that some customers, especially in the automotive industry, may require its products to undergo a qualification process before they can make a purchase. While the qualification can take several months, it does not guarantee that the customer will make a purchase. In some cases, it may take even longer before the customer begins mass production of the systems that incorporate Ambarella’s components. Therefore, the company further cautions that delays in the qualification process could result in it holding excess or obsolete inventory.
The company tells investors in a newly added Production risk factor that shortages in the semiconductor supply chain could hurt its sales and profit. It mentions that there is currently a global semiconductor manufacturing capacity shortage and that it may be unable to meet the demand for its products. It warns that failure to meet demand could cause it to lose revenue and damage its relationship with customers. Further, the company cautions that the rising cost of production materials due to increasing demand could adversely affect its financial results.
The Finance and Corporate risk factor’s sector average is 40% compared to Ambarella’s 26%. Ambarella’s shares have gained about 96% since the beginning of 2021.
Analysts’ Take
Stifel Nicolaus analyst Tore Svanberg recently reiterated a Buy rating on Ambarella stock and raised the price target to $215 from $200. Svanberg’s new price target suggests 19.69% upside potential.
Consensus among analysts is a Moderate Buy based on 10 Buys, 4 Holds, and 1 Sell. The average Ambarella price target of $217.71 implies 21.20% upside potential to current levels.
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