Ambarella Q2 F2018 earnings are scheduled for release tomorrow after closing bell, and Wall Street consensus currently stands at adjusted earnings of 44 cents per share on $71 million in sales. The company guided for sales of $69 million to $72 million when it released its last earnings report.

In last year’s second quarter, the GoPro supplier reported $65.1 million in revenue and 54 cents per share in non-GAAP earnings.

Ambarella q2 f2018 earnings

What to expect in Ambarella Q2 F2018 earnings

In a preview report on Ambarella Q2 F2018 earnings, Deutsche Bank analyst Ross Seymore said he expects the company’s IP Security revenues to be up 8% quarter over quarter, driven by sales growth in professional/ consumer security and Wearables. IP Security contributes about half of Ambarella’s total revenues. He’s expecting sequential growth of 8% to 10% in professional/ consumer security sales and 20% sequential growth in Wearables sales.

GoPro has been one of Ambarella’s key customers for quite some time, and Seymore notes that the action camera maker’s sales rebounded during its June quarter. As a result, he expects the rebound in GoPro camera sales to offset the decline in non-GoPro wearables sales.

In his preview note on Ambarella Q2 F2018 earnings, KeyBanc analyst Brad Erickson focused on drone sales, and his checks with 12 U.S. drone retailers show that drone sales are going about as expected. Both the DJI Mavic and Phantom 4 are still “solid sellers with no signs of meaningful inventory build-up,” he said. He also reports that the June quarter results from Ambarella’s two biggest IP Security customers, Dahua and Hikvision, were solid.

Looking to the October quarter

For its third fiscal quarter, Seymore expects Ambarella to guide for sales that will be about in line with the consensus at $89 million as seasonality across all of its end markets remains strong. He projects a 19% sequential increase in IP Security sales, 89% growth in Wearables, a 10% increase in Auto revenues, and 15% increases each in Drones and Other revenues.

Erickson also expects Ambarella’s guidance to be in line with consensus but adds that the company will need its IP Security segment to return double-digit growth to drive upside in its October quarter.

He feels that in a very short time, investors will start caring less and less about Ambarella’s fundamentals and more and more about its opportunities in new markets. The company was rocked earlier this year when it was revealed that GoPro was moving away from its components. Some analysts actually viewed this as a positive because the action camera maker has been struggling.

Fundamentals may start mattering less for Ambarella

Ambarella is still in the early stages of the transition to zero revenues from GoPro, but Erickson is looking forward to new opportunities for the company in autonomous and semi-autonomous cars. He believes Ambarella stock is already starting to reflect the beginning of speculations about the company’s opportunities in this area.

However, he feels the company should provide more detail on its progress in automotive cameras. He also feels that if Ambarella does expound upon its progress and/ or reveals traction as a Tier 1 automotive supplier, its stock multiple could expand “well above the 22.8x where AMBA is currently trading.”

It’s been a choppy week for Ambarella shares, which shed all the gains they made this year after plunging in July. The day before Ambarella Q2 F2018 earnings are due for release, the company’s stock rose by less than 1%, touching $54.85 briefly before retreating.