The Reason to Be Bullish on GoPro Stock
GoPro Inc (NASDAQ:GPRO) has been hemorrhaging share value at an alarming rate. On February 3, not even GoPro stock’s most devoted investors expect a Hail Mary pass to improve its fourth-quarter 2015 earnings report. The consensus is that GoPro’s earnings will shock analysts with a tailspin so steep, even the most cynical among them could not foresee it.
Still, Wall Street has prepared for bad news. Market experts have already cut estimates for GoPro stock after the company’s sales warning. GoPro admitted that its holiday-quarter sales would be worse than expected. GoPro also announced plans to lay off seven percent of its workforce. (Source: “GoPro to shed light on gloomy holiday quarter,” MarketWatch, February 3, 2016.)
Sell-side analysts predict GoPro will deliver earnings of $0.05 per share, versus $0.99 the previous year. Before GoPro’s January warning, the average earnings-per-share (EPS) estimate was as high as $0.32 per share. (Source: Ibid.) In January, the company reported preliminary sales of $435 million. (Source: “GoPro Shares Nosedive as Demand Slumps for Action Cameras,” Bloomberg, January 13, 2016.)
This forced analysts to lower their expectations of up to $507 million. Even the most optimistic estimate is much lower than last year’s $634 million. (Source: Ibid.)
GoPro is an original, a brand-name that describes the very idea of action camera. It is like “Kleenex” or even “Aspirin.” After listing on the stock exchange on June 26, 2014, GoPro stock (NASDAQ:GPRO) shot up in a few months from $24.00 to more than $90.00. GoPro has quickly attracted fetish-like interest among surfers, extreme sports fanatics, and motoring enthusiasts.
Anyone searching for Corvette videos on YouTube might be forgiven for thinking GoPro makes more sparks than a firecracker lit at both ends. There’s never a right time for bad quarterly results and job cuts announcements. But for GoPro investors, the timing is especially painful. Analysts and investors have questioned GoPro’s strategies to sell more cameras and optimize revenues. GoPro has failed to achieve both goals.
GoPro’s earnings announcement is also rich in negative sentiment because of delays with the launch of its “Hero 4 Session” model. Once it got to the shelves, sales did not go as planned. GoPro had to cut the price of the new product on several occasions. In turn, Morgan Stanley cut the target price of GoPro stock. (Source: “MORGAN STANLEY: GoPro’s marketing has been a failure, and it has even bigger issues that are about to get worse,” Business Insider, December 14, 2015.)
Many analysts have echoed Morgan Stanley’s concerns, suspecting that GoPro does not have what it takes to gather mass appeal. They think it will remain a darling only among extreme sports enthusiasts and the like. (Source: “Why GoPro’s Stock Is Tumbling,” Time, January 14, 2016.)
Yet, GoPro’s expected job cuts, affecting about seven percent of its workforce, show the company has grown too fast. GoPro will also lose one of the executives, Zander Lurie, who will move to GoPro’s board of directors.
To evaluate GoPro stock simply on the performance of the last few months would be shortsighted. The company may, by its own admission, given the job cuts, have grown too fast. GoPro stock has lost 75% of its value over the last year and 60% in the last three months, trading under the $24.00 per share of its stellar initial public offering (IPO) in 2014. GoPro’s stock market trend does not reflect the fact that the company has still grown 43% compared to 2014. Such growth should cause envy and scare off the competition, especially as the full Christmas season approaches.
Still, GoPro has not lost any of the potential that made it a stock market darling in the first place. This is the first big moment of difficulty for Nick Woodman. GoPro’s founder and CEO now has a chance to start anew with the lessons of hindsight. The Californian, returned from surfing in Australia, invented a camera that he could attach to a surfboard. He was disappointed that other cameras could not capture his feats on the waves.
GoPro said that if they had offered the Hero 4 at a lower price from the start—with proper marketing—its sales would have been better. GoPro has no debt and approximately $500 million of cash in the coffers. GoPro will remain the benchmark in the market; call it the “Rolex of mini cameras.”
By the middle of 2016, it will launch its own GoPro drone with integrated optics. (Source: “GoPro Camera Drone Will Be Released in 2016,” PetaPixel, May 28, 2015.) That alone will draw customers this year to film the new extreme sport of analysts eating humble pie.