GPRO Stock: This Is Where GoPro Inc Is Going Next

GPRO StockWhen a company’s sales decline by 50% year-over-year, its shares are likely in the doldrums. GoPro Inc (NASDAQ:GPRO) stock is a good example. Shortly after it reported earnings, however, GoPro stock actually shot up as much as nine percent in after-hours trading. But as the earnings conference call started, the stock went back to the red. Just where on earth is the company going next?

GoPro Stock: A Wild Ride in After-Hours Trading

In the first quarter of 2016, GoPro generated $183.5 million in revenue. While the number is down 49.5% compared to the year-ago period, it easily beat Wall Street’s expectation of $169.1 million. (Source: “GoPro Announces First Quarter 2016 Results,” GoPro Inc, May 5, 2016.)

The bottom line also deteriorated. In the first quarter last year, the company made an adjusted net income of $35.6 million. This time, GoPro has lost its profitability. The company had a non-GAAP net loss of $86.7 million, translating to an adjusted net loss of $0.63 per share. The loss also turned out to be wider than analysts’ estimated loss of $0.60 per share.

To make matters worse, margins have been shrinking. A year ago, GoPro was enjoying an impressive 45.2% non-GAAP gross margin. Fast-forward to today and the company’s gross margin has narrowed by more than 1,200 basis points to 33.0%.

Not everything is bad, though. According to GoPro’s founder ad CEO, “consumer demand for GoPro remains solid.” (Source: Ibid.)

He continued, “Unit sell-thru was close to first quarter 2015 levels, a quarter which benefited from the launch of HERO4. Revenue exceeded our guide and, importantly, unit sell-thru rates were approximately 50% higher than sell-in which drove global inventory levels down. And while we had to make the difficult decision to delay our drone, Karma, the upside is that Karma’s launch should now benefit from the holidays.” (Source: Ibid.)

In particular, GoPro is still the go-to choice for those who want an action camera. According to The NPD Group’s retail tracking service, GoPro had a solid 20.9% share of the combined digital camera/camcorder market in the U.S. in the first quarter, which actually represented a 150-basis-point increase year-over-year. (Source: Ibid.)

What’s even more impressive is that GoPro accounted for four of the top five products in unit sales in the combined digital camera/camcorder category in the U.S. The company’s “HERO4 Silver” is still the best-selling digital camera both on a unit basis and on a dollar basis. The No. 2 spot is captured by GoPro’s “HERO4 Session.”

The company is also gaining popularity on a global scale. In Europe, GoPro’s digital imaging unit share surged 200 basis points to 10.5%. On a unit basis, GoPro accounted for six of the top 10 camcorders in Europe.

In total, international sales accounted for more than half of the company’s total revenue for the quarter.

Going forward, GoPro’s forecast is similar to its previous one back in February. The company expects full-year 2016 revenue to be in the range of $1.35 billion to $1.50 billion.

The Bottom Line on GPRO Stock

Note that other than action cameras, GoPro does offer other products, although they are still camera-related. The company sells a 360-degree 16-camera array, called “Odyssey,” to professional filmmakers, and has started taking preorders on a less expensive six-camera array, called “Omni,” for August delivery. The release of its long-awaited drone, “Karma,” however, has been delayed.

Even though some the company’s products could have huge potential, the declining financials will likely be a drag on GoPro stock in the short term.