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I have been watching Ambarella (NASDAQ:AMBA) since the first hour of its public existence a decade ago. In fact the company went public at just $6 per share as I was puzzled behind the reasons for the failed offering at the time.
The company sold 6 million shares at the time, far below the midpoint of the preliminary offering range of $10 per share, as the resulting $150 million valuation (even lower if we factor in net cash) resulted in Ambarella being recognized as truly a microcap.
That valuation was very reasonable for a business with some $100 million in sales and earnings of nearly $10 million, posted at the time. These revenues were generated from human viewing applications requiring low-power and high-video resolution processing for consumer and security markets.
Since the offering in 2012, shares quickly rallied in a huge manner as they hit the $100 mark in 2015, resulting in a 15x bagger in just around three years time. What followed have been years of stagnation, with shares trading around the $50 mark for a long time, actually a long way into 2020.
Fast forwarding to early 2020 the company posted its fiscal year 2020 results early in that calendar year, just when the company was experiencing the outbreak from the pandemic, like the rest of the world. Full year sales were flattish at $229 million, more than double the 2012 run rate.
That was about the good news as the company posted a GAAP operating loss of $50 million that year as dilution increased the share count to 33 million shares. With the equity valuation having risen to $1.6 billion at $50 per share, operating assets were valued at around $1.3 billion, as valuations have risen from around 1 times sales for a profitable business in 2012 to roughly 6 times sales for an unprofitable business in 2020!
That conclusion, that of reduced appeal is a bit too shortsighted as Ambarella has been transforming the business in the meantime, with costs being recognized first. The company has invested heavily into becoming an artificial intelligence semiconductor play, investing large sums to develop a neural network, a long-term investment which comes at high upfront costs.
Fast forwarding to early 2021, that is March of the year, shares had rallied further, trading again at $100 per share. Around this time the company posted its 2021 results (really coinciding with the calendar year of 2020) as revenues fell modestly to $223 million, but were up again year-over-year in the second half of the year.
That was about the good news as GAAP operating losses of $50 million rose further to $61 million, driven by stock-based compensation costs, as valuations only became more …….