Despite announcing solid 2018 fiscal second quarter results, Ambarella Inc (NASDAQ:AMBA) spoiled the party by lowering its full-year fiscal 2018 guidance. Shareholders responded in a fury by dumping shares by 25% since Friday. The lowered outlook comes in response to a continued dip in revenue for drones and wearables and the wild success of Dà-Jiāng Innovations (DJI), which has all but completed its takeover of the lower-end drone market.

Analyst Andrew Uerkwitz of Oppenheimer attributes the fiscal second quarter results, which saw revenue up by 10% year over year as “driven by healthy growth from IP cameras,” all the while underlining that “the weaker outlook is driven by lower drone revenues.”

Moreover, while noting that AMBA is not supplying chips to DJI’s Spark drone, the analyst expects “AMBA’s first gen drone CV chip to address the high-end market, which means AMBA is unlikely to compete for DJI’s low-end designs in the next 18 months.” In the meantime, Uerkwitz underscores that “DJI’s low-end product is so strong that it is cannibalizing its high-end segment and driving away competitors.” However, on a positive footnote, “CV products offer interesting long-term potential,” opines the analyst.

The company served up a fiscal second quarter revenue beat of $71.6 million ahead of the Street’s prediction of $70.7 million and Uerkwitz’s forecast of $70.5 million, while EPS of $0.48 exceeded Uerkwitz estimate of $0.45 and consensus projection of $0.44. Meanwhile, non-GoPro revenues were up 16.4% year over year.

Looking towards the third fiscal quarter, management sets guidance expectations for revenue between $87.5 million and $90.5 million, gross margin between 62% and 63.5%, operating expenses between $28 million and $29.5 million, along with a 16% non-GAAP tax. For fiscal year 2018, management is adjusting revenue projections from $310 million to $297 million and EPS from $2.15 to $1.96, while fiscal year 2019 revenue and EPS were lowered from $320 million to $298 million and $2.16 to $1.76, respectively.

While acknowledging a short-term struggle, due to struggling sales of drones and wearables, the analyst simultaneously sees long-term potential in the company’s product line, stating: “We remain on the sidelines while the company braves significant share loss at two major customers: GoPro and DJI. We look forward to early calendar 2018, when we expect a number of demonstrations and prototype products showcasing AMBA’s CV chip capabilities.”

As such, the analyst maintains a Perform rating on AMBA stock without providing a target price. (To watch Uerkwitz’s track record, click here)

TipRanks analytics exhibits AMBA as a Buy. Out of 9 analysts polled by TipRanks in the last 3 months, 3 are bullish, while 6 are sidelined on Ambarella stock. With a potential upside of near 31%, the stock’s consensus target price stands at $53.17.