Key GoPro supplier Ambarella slipped slightly today after releasing its latest earnings report and guidance that was weaker than expected. However, it seems the report was more damaging for GoPro, as GoPro shares declined by nearly 5% during regular trading hours on Friday.

GoPro

GoPro estimates cut

In a report dated Dec. 3, Piper Jaffray analysts Erinn Murphy and Christof Fischer said they have reduced their sales estimates for GoPro’s fourth quarter after last night’s report from Ambarella. Ambarella beat sales estimates but reported fourth quarter guidance that was lower than consensus estimates. The company supplies video compression and image processing chips for GoPro’s action video cameras.

Murphy and Fischer believe Ambarella’s weak fourth quarter guide was the result of softness in the wearable camera market and especially in GoPro. They correlated GoPro’s revenue with Ambarella’s revenue “on a one quarter lag” and have discovered apparent downside to GoPro’s fourth quarter revenue.

Ambarella’s commentary points the finger at GoPro

Ambarella reported third quarter revenue of $93.2 million, a 41.9% increase year over year which beat the consensus estimate of $89.9 million. The company’s guidance for the fourth quarter was sales of between $65 million and $67 million, which came up far short of Wall Street’s estimate of $76.3 million.

The company specifically said its wearable sports market is seeing sequential and year over year decelerations. Also management said inventory in this specific category is building up and that as of the end of the third quarter and going into the fourth quarter, the wearable sports market has “substantially” high inventory, which is having a negative impact on chip shipments for it into the fourth and first quarters. Further, Ambarella expects a decline in the wearable sports camera market in the first quarter.

Signs of sales pressure on GoPro

The Piper Jaffray tem has found a correlation of 0.86 between Abarella’s revenue and GoPro’s revenue a quarter apart. As a result, they see possible downside to their fourth quarter revenue estimate for GoPro. If the correlation holds, they said the camera maker’s revenue should fall somewhere in the range of $470 million and $475 million. Their previous estimate was $488 million, but they have since lowered it to $472 million based on their analysis. They’ve also slashed their earnings per share estimate from 34 cents to 28 cents per share for the fourth quarter.

For all of fiscal 2016, they cut their sales estimate from $1.588 billion to $1.573 billion and their earnings estimate from $1.03 to 97 cents per share. Murphy and Fischer maintained their Underweight rating and $15 per share price target on GoPro.

GoPro shares closed out regular trading hours on Friday down 4.91% at $18 per share, while Ambarella closed the day down 1.64% at $56.93 per share.