Laboring the labor data and update on AMBA’s quarterly report
This chart, which is a more accurate reflection of employment trends in this country than the unemployment rate, is trying to put in a bottom and is still a long way from pre-2008 crisis levels. “Labor force participation rate nudges up to 62.5 percent” https://t.co/GN5Cwn7LTW
On the one hand that’s a bit of a depressing chart since it means there’s still a lot of people out of work. But on the other hand, it underscores how we could see some serious improvement in job growth as this slow motion economic recovery from the 2008 financial crisis expands. Most everything you’ll hear discussed about today’s jobs number and the Federal Reserve and rates and Phillips Curves and so on is noise. Let’s look past it as usual.
Remember two months ago when the October jobs report hit and people freaked out and the markets tanked? As I wrote at the time:
“I think Main Street’s economy has finally started to improve, and the labor market overall is getting stronger as the corporate economy is also net adding jobs. The employment report that just hit was +142,000 new jobs created last month, which underscores the idea that jobs are being created. But the folks trading futures freaked out about that immediately upon the news, tanking the $DJIA from +200 to -160, and taking rates lower across the board.
All this because a few media organizations had surveyed a bunch of random economists — who never saw the last few crashes and bubbles coming, or were going on how many jobs were created in a 135-million-job US economy over the last 30 days. And the consensus of those guesses had come in at about 200,000. The last two months’ employment reports were also revised down 40,000 or so, each month. So “the economy is weaker than expected and not growing jobs as fast as we thought it was!” is what we hear and read.
That means we are supposed to sell our stocks — all in the name of gaming this game? Because those economists’ best guesses were off, collectively, by 60,000? The 40,000 revisions to the last of couple months’ figures underscores how silly it is to base any decisions about your money (or policy, as the case may be) on such nuanced short-term economic data points.”
Now let’s talk about AMBA’s earnings report last night. Ambarella reported a strong quarter but gave weak guidance. Revenues came in $93.2MM (vs. the St $89.9MM). GMs 65.9% (vs. the St 63.5%). EPS 1.08 (vs. the St 0.86). For Jan they see revs $65-67.5MM (vs. the St $76.3MM) and GMs 63-64.5% (vs. the St 62.6%). This is probably the key quote from the conference call “we are experiencing near term headwinds in the wearable sports market which is expected to negatively impact revenue in Q4 of this year. Despite the near term headwinds, we are very pleased by the wide range of new cameras introduced by customers during the third quarter, and by our introduction of three new SoC families that will drive the next generation of innovative camera products.”
Here’s some solid Ambarella analysis from a subscriber in the Trading With Cody Chat Room:
“I am at a crossroads with my AMBA position. I was hoping this quarter and conference call( which i listened to all of) would give me some hope that AMBA is not so GPRO dependent. Well, needless to say it sadly is very gpro dependent. What I gathered from the call was the high end high margin SoC camera that amba has is very much tied to gpro. The rest of their market seems to be tied to surveillance and internet of things. They also discussed dash cams and aerial cams…. They pointed to the second half of next year as the introduction of their A12 SoC which will serve their lower end consumer market drones. This sounded promising. But it is a lower margin product. They have some new customers and are aggressively seeking more which was also positive. Thy discussed Taser making cameras for police officers and various other markets their cameras would be integrated into. But as the Q and A portion came around I was again disappointed to hear that they expect negative YoY growth in the April quarter due to our mismanaging buddies at gpro.
According to AMBA there is at least 100 days of inventory backlog that gpro has to work off and their failure to introduce (gpro) to intro a new product is very negative for thier high margin cameras. All in all the second half of next year for AMBA will see a reacceleration of growth but from now till the april quarter there will be a very large slump in growth.
They do have 8$ a share in cash which they pledge to use for M and A not a pointless buyback. I’m hoping you have a more optimistic outlook than I, especially as QCOM has developed their own SoC which Ambarella says is inferior to their chips.”
That’s great analysis. Looking past all this near-term analysis with GoPro inventory issues and seeing the growth in video recording demand as robots, drones, security, toys, wearables and other new products come down in price and go ever more mainstream, there’s still a lot of potential for growth at Ambarella to re accelerate. I’m sticking with the name for now which is still up more than double where we first bought it.
