An example

Investment Analysis Clubs Saul’s Investing Discussions
1

In my last post I wrote …which is why most companies use fully-taxed earnings. This doesn’t hold of course for GAAP tax rates, which can be anything. You’ll often see a quarter when a company takes all its remaining tax loss carryovers and reports huge, very huge, GAAP earnings, and goes back to normal the next quarter.

You may wonder what I’m talking about. Here’s an example from ABMD’s press release several quarters ago: Their GAAP earnings for the quarter were an amazing $2.24, up from 9 cents the year before, but it was all GAAP nonsense and the next quarter they announced 20 cents, which was approximately what that quarter would have been without the GAAP silliness.

Fourth quarter 2015 GAAP net income of $98.9 million, or $2.24 per diluted share, compared to $3.6 million, or $0.09 per diluted share, in the prior year period… GAAP net income included an income tax benefit of $86.5 million largely due to the release of the valuation allowance on most of Abiomed’s deferred tax assets. The release of the valuation allowance is a onetime accounting adjustment…

Note that $86.5 million, out of their total GAAP net income of $98.9 million, was smoke and mirrors.

Saul

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Saul,

As I recall, you sold your shares in ABMD a while back. Was their lack of non GAAP earnings the reason then?

Daryn

3

As I recall, you sold your shares in ABMD a while back. Was their lack of non GAAP earnings the reason then?

Very high PE for one thing. The other was that they made it very hard to tell what their true adjusted earnings were as they didn’t gove them and didn’t tell you what their stock based compensation was and you had to track it all down each quarter and could never be sure. I just got tired of fighting it.

Saul

4

Their GAAP earnings for the quarter were an amazing $2.24, up from 9 cents the year before

So it was the tax gimmicks again. That explains their low P/E at 30. Their honest P/E is more like 80.

5

There is plenty of competition to the product categories mentioned .

As far as I can tell there never was a real competitive advantage for Ambarella . Much less a sustainable one. Just Go Pro, itself rapidly becoming commoditized.

Re automated driving- the main sticking point here is camera software, not hardware. You don’t need 2o- 20 or 20-10 vision to avoid bumping into large objects. My old dog with less than human vision does it just fine thanks to an adequate level of software for the task.

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6

Automotive may have multiple markets for AMBA. There is dash cams (for police, taxis as well general market) as well as ADAS. ADAS I can imagine being dominated by the software players rather than the hardware players - e.g. MobileEye. Now if AMBA supplied MobileEye then we are talking.
Ant

7

Re automated driving- the main sticking point here is camera software, not hardware. You don’t need 2o- 20 or 20-10 vision to avoid bumping into large objects. My old dog with less than human vision does it just fine thanks to an adequate level of software for the task.

Yea, My 90 year old Grandmother does too in her walker. But then she isn’t driving her walker down the highway at 70 miles an hour. But maybe you let your dog do that?

Andy

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8

my dog can do things lots of things humans can’t.

Cheetahs can avoid things while moving at 70 mph.

As well as do lots of things people or automated can’t. Driving wise I doubt if the brain (software) in cars matches up the brain of a cheetah.

Point being is that only a relatively low level of hardware machine vision(cameras) is needed, but putting it together into something meaningful to driving requires a high level of software. An area where this company has no advantage.

But just keep on holding the stock…

1 Like
9

Mauser,

Cheetahs can avoid things while moving at 70 mph

Cheetahs also see very well. But then I think your argument of dogs and cheetahs is a straw man argument.

Cheetahs are equipped with several special features that are crucial in successful and efficient hunting. Binocular vision is a very important asset since Cheetahs rely on sight to hunt as opposed to scent. The retinal fovea of the eye is of an elongated shape, giving a sharp wide-angle view. This aspect of the eye is also adapted for speed. The dark “tear marks” on the Cheetahs face reduce glare from the bright sun also and aid in excellent vision

http://bigcatrescue.org/cheetah-facts/

Point being is that only a relatively low level of hardware machine vision(cameras) is needed, but putting it together into something meaningful to driving requires a high level of software.

I agree with you that the software will be the key but to think that the hardware only needs to be adequate is where we disagree. I do not know if you have security cameras but if you do you will realize that an adequate camera is not very good. At 720p the camera will be adequate during the day but not adequate at night. The camera just doesn’t have the ability to see very clear at night and this doesn’t have only to do with ir leds but with the camera lens also. Now if you want a car to be able to “see” well enough to drive we can not have hardware that is adequate. The reason for this is that we will not want to have people wrecking their cars because the hardware is adequate. While driving at night, or in the rain, it will need so see many obstacles. I am sure that the people engineering these devices will want to add into the system the best hardware, at least initially. In the future, when this becomes more main stream, I believe these cameras will become more commoditized but I do not think this will happen at this time for cars.

Also, you are acting like Ambarella only makes cameras for cars, but that isn’t so. Anything that uses a camera is in Ambarella’s purview. Such as Tazer, and body cameras. Drones, DJI Phantom 3 and rumored to be in the Phantom 4 and soon the Go Pro drone. Security Cameras, Avigilon and many other manufactures of security cameras. Action cameras, Go Pro and if you look here a lot of Chinese companies are actually advertising that they have Amberalla chips in their action cameras. http://www.alibaba.com/showroom/ambarella-action-camera.html…

Also, I do not know if you listened to the conference call but they are seeing strong growth in Drones, Dash Cameras for cars, Professional IP security cameras, virtual reality cameras, and home monitoring cameras. Their weakness was in the action camera that is Go Pro. This is understandable because Go Pro has the market share in that sector and we have to watch to see if they can come back with another must have action camera, it is possible that they will not but Ambarella is diversifying into other areas as I have pointed out.

You really need to read the Transcript if you haven’t listened to the CC because they have many products that are coming out that will nice to have. One of them is a soc on Flying cameras that you can use that possibly will not need a mechanical gimbals. You can read the whole CC transcript here.
http://seekingalpha.com/article/3954086-ambarella-amba-feng-…

So, as you can see, while Go pro has stumbled and this has certainly hurt Ambarella they are trying to diversify away so that their business can be stronger. Will it work, only time can tell. This does make their company and stock a bigger risk. But to say that they are doomed because you do not need better hardware ie cameras because cars do not need to “see” that well is just not true.

But just keep on holding the stock…

Thank you I think I will.

Andy
Who has been wrong before and could be wrong this time too.

5 Likes
10

That was annoying, Sorry about that this should read better.

Mauser,

Cheetahs can avoid things while moving at 70 mph

Cheetahs also see very well. But then I think your argument of dogs and cheetahs is a straw man argument.

Cheetahs are equipped with several special features that are crucial in successful and efficient hunting. Binocular vision is a very important asset since Cheetahs rely on sight to hunt as opposed to scent. The retinal fovea of the eye is of an elongated shape, giving a sharp wide-angle view. This aspect of the eye is also adapted for speed. The dark “tear marks” on the Cheetahs face reduce glare from the bright sun also and aid in excellent vision

http://bigcatrescue.org/cheetah-facts/

Point being is that only a relatively low level of hardware machine vision(cameras) is needed, but putting it together into something meaningful to driving requires a high level of software.

I agree with you that the software will be the key but to think that the hardware only needs to be adequate is where we disagree. I do not know if you have security cameras but if you do you will realize that an adequate camera is not very good. At 720p the camera will be adequate during the day but not adequate at night. The camera just doesn’t have the ability to see very clear at night and this doesn’t have only to do with ir leds but with the camera lens also. Now if you want a car to be able to “see” well enough to drive we can not have hardware that is adequate. The reason for this is that we will not want to have people wrecking their cars because the hardware is adequate. While driving at night, or in the rain, it will need so see many obstacles. I am sure that the people engineering these devices will want to add into the system the best hardware, at least initially. In the future, when this becomes more main stream, I believe these cameras will become more commoditized but I do not think this will happen at this time for cars.

Also, you are acting like Ambarella only makes cameras for cars, but that isn’t so. Anything that uses a camera is in Ambarella’s purview. Such as Tazer, and body cameras. Drones, DJI Phantom 3 and rumored to be in the Phantom 4 and soon the Go Pro drone. Security Cameras, Avigilon and many other manufactures of security cameras. Action cameras, Go Pro and if you look here a lot of Chinese companies are actually advertising that they have Amberalla chips in their action cameras. http://www.alibaba.com/showroom/ambarella-action-camera.html……

Also, I do not know if you listened to the conference call but they are seeing strong growth in Drones, Dash Cameras for cars, Professional IP security cameras, virtual reality cameras, and home monitoring cameras. Their weakness was in the action camera that is Go Pro. This is understandable because Go Pro has the market share in that sector and we have to watch to see if they can come back with another must have action camera, it is possible that they will not but Ambarella is diversifying into other areas as I have pointed out.

You really need to read the Transcript if you haven’t listened to the CC because they have many products that are coming out that will nice to have. One of them is a soc on Flying cameras that you can use that possibly will not need a mechanical gimbals. You can read the whole CC transcript here.
http://seekingalpha.com/article/3954086-ambarella-amba-feng-……

So, as you can see, while Go pro has stumbled and this has certainly hurt Ambarella they are trying to diversify away so that their business can be stronger. Will it work, only time can tell. This does make their company and stock a bigger risk. But to say that they are doomed because you do not need better hardware ie cameras because cars do not need to “see” that well is just not true.

But just keep on holding the stock…

Thank you I think I will.

Andy
Who has been wrong before and could be wrong this time too.

4 Likes
11

Saul,

ABMD is still a kewl ride since about November 1, 2014. Still watching for the 20 ema to cross back down over the 200 ema. Almost had a Rick O’Shea the latter part of February. A swing trader would trade above and below the 20 ema for excitement.

http://stockcharts.com/h-sc/ui?s=ABMD&p=D&yr=1&m…

Just JAFOing around.

Best regards,
Quillnpenn

12

Thanks Andy, I think I’ll rec this one

Joe
Long AMBA and always thought AMBA was about more than Go Pro but reading these threads with much interest and consternation.

1 Like