GoPro Stock Faces An Uphill Climb Going Into Q4 Earnings

  • GoPro will announce Q4 2015 earnings on 3rd February 2016.
  • GoPro had issued very weak guidance during its third quarter earnings call.
  • Wall Street and investor expectations for the company are very low.
  • GoPro might exceed these low expectations, but requires a good product launch for GoPro stock to make a comeback.

Erstwhile tech darling GoPro (NASDAQ:GPRO) is due to report Q4 2015 earnings on 3 Feb 2016 after markets close. During its third quarter earnings call, GoPro said that it expected fourth quarter revenue to decline a whopping 17% Y/Y to $500M-$550M compared to $634M the company posted during Q4 2014, with EPS clocking in at $0.35-$0.45, a huge 47%-59% Y/Y drop. But GoPro added insult to injury when the company recently lowered its revenue guidance again to $437M, a massive 31%Y/Y decline.

Prior to the third quarter, GoPro had managed to exceed earnings estimates in all its previous earnings calls. Wall Street is currently extremely bearish about the company and expects GoPro to report EPS of just $0.07 and revenue of $539.18M, a 15%Y/Y decline.

GoPro Earnings Surprise History

Fiscal
Quarter End
Date
Reported
Earnings
Per Share
Consensus
EPS* Forecast
%
Surprise
Sep2015 10/28/2015 0.14 0.22 -36.36
Jun2015 07/21/2015 0.25 0.14 78.57
Mar2015 04/28/2015 0.11 0.08 37.5
Dec2014 02/05/2015 0.85 0.62 37.1

Source: NASDAQ

There is a fair chance that GoPro might exceed these ultra-low expectations when it reports fourth quarter earnings. It’s quite possible that the company decided to be conservative with its guidance after the third quarter earnings miss. Other than the miss on the bottom line during Q3 2015, GoPro had projected revenue growth of 56% during the quarter but ended up posting only 43% growth. Now 43% growth is certainly robust growth by almost any yardstick. What spooked investors, however, was the company’s huge 13-percentage point miss on the top line which clearly demonstrated that GoPro’s management had been blindsided by events.

GoPro might very well exceed its Q4 2015 earnings estimates, but it will take more than that to restore investor confidence in the company and salvage a stock that is down 40% YTD and has lost more than 80% of its value over the past 12 months.

GoPro Stock 1 Year Returns

GPRO stock chart

GoPro stock price chart by amigobulls.com

The big problem here is that the investing universe has lost faith in the ability of GoPro’s management. GoPro has lately taken some major missteps that have made investors to seriously question how well its management understands the market.

GoPro’s current woes are mostly tied to the launch of Hero4 Session, a tiny ice-cube size camera, a whole quarter before the holiday season and at an improbable price of $400. GoPro was subsequently forced to cut the price of the camera twice to its current price of just $200, resulting in a $21M writedown by GoPro for the product.

Investors expected that GoPro’s management would thereafter right its wrongs by launching Hero5 during the holiday season, only for GoPro to instead unveil Hero+ in September. At a cost of $200, Hero+ competes directly with Hero4 and could easily cannibalize its sales especially since Hero4 has received so much bad ink.

The second mistake by GoPro has to do with its upcoming consumer drone, GoPro Karma, that is due for launch sometime during the current year. GoPro’s decision to launch its own drone seems to have been informed by DJI’s move to start pairing its own cameras with its Phantom drones instead of GoPro cameras as was the case previously. Had GoPro been more proactive and launched its drone a couple of years back, by now the company’s drones would have gained respectable market share. But now GoPro has to come from behind, and compete against the likes of DJI, 3D Robotics, and Parrot, all of which are already well-recognized brands in the drone business.

Despite its missteps, it’s still too early to completely write-off GoPro as basket case. GoPro can potentially get in-sync with its product cycles and make a surprise comeback. GoPro’s top line received a massive boost from the company’s launch of Hero4 Silver and Hero4 Black in late 2014, with top line growth hitting a growth high of 75% two quarters after the launch due to the massive popularity of the cameras. GoPro plans to launch Hero5 in September 2016, and could spring back to life if the camera proves to be a hit like the early Hero cameras. This time though, GoPro will have to contend with much tougher competition, notably from 360-degree panoramic cameras from the likes of Kodak and JK Imaging.

Additionally, GoPro’s upcoming consumer drone might still succeed in cutting itself a respectable niche despite being late into the market primarily because it will be the first drone manufactured by what is predominantly a camera company. By bundling its cameras with its drones, GoPro will quite likely be able to offer more competitive prices than other standalone drone manufacturers.

Investor Takeaway

With GoPro’s, Wall Street’s, and investors' expectations so low, it probably won’t come as a surprise if GoPro exceeds those low estimates. But it will still take a good product launch for GoPro stock to really bounce back. Barring another major surprise, GoPro stock doesn’t seem to have a lot of downside at this point. Bold contrarian investors who are willing to bet on the GoPro’s comeback can buy the shares with a 1-2 year time-frame in mind. At this point though, GoPro stock might not be for everybody.

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