GoPro Follows Ambarella Higher After Chip Supplier's Earnings Beat

NEW YORK (TheStreet) -- Ambarella  (AMBA) is advancing in afternoon trading after last night's first quarter results and second quarter guidance both beat consensus estimates. The positive news was followed by several analyst notes on both Ambarella and its key camera chip client GoPro, several of which gave an upbeat spin on the potential for the drone and action camera markets going forward.

WHAT'S NEW: Needham's N. Quinn Bolton and Krysten Sciacca upgraded Ambarella to Hold from Underperform, citing its above consensus Q2 revenue guidance as well as growing momentum in the drone "flying camera" and consumer security camera sectors. The firm expects drone-related sales to exceed 10% of company revenue for the first time in Q2 after DJI's recent launch of two Phantom 3 drone models featuring Ambarella's A9 system-on-chip technology. Additionally, Needham notes that Ambarella's quarterly results were bolstered by strong GoPro and Xiaomi action camera sales, which is likely to continue in the second quarter as both companies ramp their respective product offerings.

WHAT'S NOTABLE: Piper Jaffray's Erinn Murphy issued a GoPro research note tracking the company's ranking among the 100 top-selling products in Amazon.com's electronics category. The tracking index demonstrated accelerating sell-through momentum in May, as GoPro grabbed a 6.1% share of Amazon's top 100 electronics versus a historical average of 4.6%. Murphy said the jump in the index represents "strong replenishment among core users and rapid adoption among new users" as the action camera sector expands. The firm says it has not seen any price pressure at Amazon, and continues to believe investors underestimate the $130 HERO, particularly in China. Similarly, JPMorgan's Paul Coster issued a research note raising GoPro's price target to $75 from $70, citing the company's "differentiated position" in the market. Coster praised GoPro's drive to innovate, as evidenced by the cloud-hosted GoPro app, virtual reality initiatives, touch-screen cameras, and its planned launch of a drone in 1H16. As noted by JPMorgan's Coster, GoPro continues to innovate, and the company's expanding product line could signal a jump for both GoPro and its chip supplier Ambarella.

PRICE ACTION: Ambarella is up nearly 3% during the day, standing at about $95 per share at time of writing. GoPro is up about 2% in afternoon trading.

Reporting by John Graff.

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