Ambarella, Inc. (AMBA) shares took a beating Wednesday, dropping more than 15% despite delivering earnings results that actually looked pretty good. Welcome to the stock market, where sometimes beating expectations still isn't enough.
The Numbers Look Solid
Ambarella reported adjusted earnings per share of 27 cents, comfortably beating the consensus estimate of 21 cents. Revenue came in at $108.50 million, topping expectations of $104.12 million.
The underlying profitability story showed clear improvement too. Non-GAAP net income climbed to $11.9 million, up from $4.6 million in the same period last year. The GAAP net loss narrowed to $15.1 million from $24.1 million a year ago. Non-GAAP gross margin landed at 60.9%, compared with 62.6% last year.
The balance sheet looks healthy. Ambarella ended the quarter with $295.3 million in cash, cash equivalents and marketable debt securities, up from both the prior quarter and the year-ago period. Management pointed to record quarterly performance driven by ongoing growth in edge AI revenue, with year-to-date free cash flow hitting 14.8% of revenue.
Guidance Beats Too
For the fourth quarter, Ambarella estimates revenue between $97 million and $103 million, ahead of the consensus estimate of $94.10 million.
Analysts Like What They See
Following the earnings report, analysts responded with price target increases. Stifel analyst Tore Svanberg reiterated a Buy rating and raised his price target from $90 to $100. Rosenblatt analyst Kevin Cassidy maintained a Buy rating and bumped his target from $100 to $115.
So Why the Selloff?
It's not immediately clear what's driving Ambarella shares lower, given the solid third-quarter report and positive analyst responses. The most likely explanation? Profit-taking. Even after Wednesday's decline, shares are still up more than 21% over the past six months. Sometimes investors just decide to lock in gains, regardless of what the latest quarter showed.
Price Action: At the time of writing, Ambarella shares were trading 15.61% lower at $76.77.
