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At a time when we’ve all become a little obsessed about taking and sharing videos of everything from our child’s first steps to our latest skydiving adventure, it would seem that any company in the camera business would be sitting pretty. Turns out, the camera business is quite competitive, as Ambarella (NASDAQ: AMBA) earnings showed on Thursday.
Ambarella is a leading producer of the chips that enable high-definition video capture, sharing and display. Ambarella earnings showed a company whose performance slowed significantly in the final quarter of the year. Ambarella said that while revenues for the full year rose more than 44%, fourth-quarter sales rose by a much more modest 5%. And, while GAAP net income rose about 50% for the full year, it tumbled in the fourth quarter, to $5.1 million, from $17.7 million.
Sports-Camera Market Takes a Dive
The official reason offered for this steep decline in Ambarella earnings in the fourth quarter was a continued decline in the market for wearable sports cameras (the ones you mount to yourself on said skydiving adventure). This drop offset stronger results in the company’s products for professional photography markets.
But the weakness in Ambarella earnings is more serious than a short-term weakness in a single product category. If you know much about this company, you know its fortunes are closely tied to those of camera maker GoPro (NASDAQ: GPRO), whose business is struggling so much that shareholders are suing in a class action lawsuit.
Ambarella Earnings Follow GoPro’s
GoPro’s stock has fallen 24% year-to-date and about 68% over the past year. Ambarella shares have trended in a similar fashion, down more than 17% year to date and almost 30% over the past year.
See any pattern? Speaking as someone who likes Instagram as much as the next person, I see a couple of key problems with this business.
- Much as we all love to snap photos of the latest snowstorm or the cute pet, the market for hardcore action images is much smaller.
- Whenever there is strong demand, there is strong competition.
Companies like Ambarella and GoPro are to a large extent seeking to win over many consumers who think their Apple (NASDAQ: AAPL) iPhones work just fine. Sure we all like to take pictures these days, but most of us already have in our own pockets a camera that works just fine for our needs.
The Ambarella earnings report did contain a forecast for an improved first quarter, but that forecast fell short of analysts’ consensus. This is a company whose technology enables some cool camera products, but it hasn’t shown itself to be a strong business.
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