Summary: The IP video surveillance camera market is undergoing a fundamental disruption, driving strong secular growth (23% CAGR 2013-17). While the key IP camera vendors are based outside the US, and thus harder to invest in, Ambarella ( AMBA ) is well positioned to profit from its dominance in semiconductor video encoders. Currently, AMBA is trading at a very modest P/E multiple of 11x ex cash based on a FYE (January) 2015 EPS estimate of $1.12. Given the competitive dominance & growth profile, we believe a more reasonable P/E multiple is 18x ex-cash, which leads to $25 price target. Many discussions regarding Ambarella focus on its sports camera business. This is understandable, as GoPro cameras account for a significant portion of Ambarella’s revenue, and GoPro is a highly successful and visible consumer product. However, we believe that the IP camera market will be the key growth driver for the company, though investor focus on this market has been modest. In this article, we would like to provide a better picture of the secular growth of the market and why Ambarella is well positioned to benefit from it. IP Camera Industry Overview: The IP camera market consists of the traditional, business-focused (enterprise and SMB) video surveillance camera market and a nascent consumer IP camera market. Between these two markets, the traditional video surveillance camera market accounts for the majority share of the current TAM. The consumer IP camera market, although small today, is expected to grow rapidly […]

Source seekingalpha.com