- GoPro is expected to report its Q3 earnings on 3rd November 2016.
- Analysts expect GoPro to report an EPS of -$0.36 on revenues of $314.06 million.
- More than earnings, the outlook regarding Karma drones and Hero Session 5 camera sales will move the stock.
Action camera maker, GoPro, is scheduled to report its Q3 2016 earnings on 3rd November. This has been an eventful quarter for the Delaware-based company. The company released its much-hyped and eagerly awaited Karma drones and Hero 5 cameras. These were GoPro's first major launches in the last one year, and a lot will be riding on their success. While these products won't impact Q3 earnings numbers, the outlook regarding these products will be the key take away from GoPro's Q3 earnings.
The flagship products, launched in mid-September, have given GoPro a new lease of life. After struggling for more than a year, losing more than 80% of its market cap, the company seemed to have found its feet with the stock gaining around 20% since the previous earnings, when GoPro reported a beat. Since then, expectations from Hero 5 and Karma drones have been driving the stock for past few weeks. A lot is riding on these products. A success could send the stock soaring, while a failure could hammer a death nail in the company.
And while there are no official numbers, there's anecdotal evidence which suggests that the initial demand for the product is strong. And this was expected considering that it is a flagship launch which will drive product refreshes. Raymond James’s Tavis McCourt in a note has said that:
We note third party sellers on Amazon are selling the Hero 5 black for $499, $100 premiums, so we suspect the product is in reasonably severe supply/demand imbalance currently with demand outstripping supply. 102012005470
Also, the search interest for Hero 5 camera is much higher than its competitors. But GoPro has its work cut out if it wants to come anywhere near analysts expectations or even its own guidance.
Why Karma And Hero 5 Cameras Are Important
After a relentless decline in the stock price on the back of declining revenue and profitability, GoPro stock started showing signs of recovery after it guided for strong growth on the expectation of new product launches. If the products fail to meet the expectations, the stock may start its downward trend again. In its Q2 earnings call, GoPro reiterated its full-year guidance for revenue between $1.35 billion to $1.5 billion, with the midpoint at $1.425 billion, which is a bit higher than analysts consensus of $1.39 billion. In the first half of the year, GoPro has reported revenues of $404.3 million. This means that GoPro will have to generate around a billion dollars in revenues in the second half of the year! That's a humungous task, especially given GoPro's past track record. Here the importance of Session 5 and Karma comes into the picture.
If GoPro is able to achieve the analysts' consensus of $316 million in the Q3, then the Q4 target will be around $680 million, little less than the first three-quarters combined! It will also be more than $40 million higher than GoPro's best ever sales result of $633 million back in Q4 2014. GoPro was riding on the success of its Hero 4 camera and had shipped more than 2.3 million units (in comparison GoPro shipped around 750,000 units in Q2) in that quarter. Hero 5 and Karma have to eclipse that success, which is not going to be an easy task. And while demand seems to be strong, doubts are already creeping in.
The Supply Issue
As we have noted in our previous article, supply side issues continue to dog GoPro. First, the company stopped the supply to Amazon, and then the reports emerged that GoPro is running out of stock. New orders for Karma will only start shipping from 28 November. That's too late into the holiday season. The delays will definitely allow competitors the expand their market share, which GoPro can't afford at present. GoPro needs to sell every camera and drone possible, if it wants to achieve its guidance.
Analysts expect GoPro to report an EPS of $-0.36 on revenue of $315.99 million. A far cry from what GoPro had reported a year back. In the same quarter last year, GoPro had reported an EPS of $0.25 on a revenue of $400.34 million. GoPro reported strong earnings in the previous quarter, which started the turn around in the stock. It had reported a sequential increase of 24% in revenue propelled by 8% increase in units shipped and 11% increase in ASP. But more importantly, GoPro said that its sell-through rate was more than 50% higher than sell-in rate leading to a massive reduction in inventory levels. This will not only clean up the inventory channel for the new products, but also reduce the probability of another inventory write-down. Expect GoPro's gross margin to be in 40% range.
Stock Performance And Short Interest
Short interest in GoPro saw a marginal decline in the previous fortnight. The short interest declined from 34.16 million to 33.23 million, but on the flip side, days to cover shot up from 2.2 days to 4.2 days (as the volume halved from previous quarter). Short interest represents a massive 35% of GoPro's total float. This reflects the bearish sentiment surrounding GoPro stock going into the earnings. But investors must be careful while shorting the stock. Any positive commentary on the Karma and Hero 5 can send the stock soaring. GoPro stock is known to be volatile with large swings. A rise in the stock price could potentially create a short squeeze.
GoPro stock is down around 50% YTD. But the stock has shown some recovery on the back of strong Q2 earnings and high expectations from Hero 5 cameras and Karma drones. Anecdotal evidence suggests that the initial demand for Hero 5 cameras and Karma is high, but several supply side issues continue to dog the company. Analysts expect GoPro to report an earnings of -$0.36 on a revenue of $315.99 million. But more important than the earnings number will be the outlook regarding the Karma drones and Hero 5 cameras. Investors must wait until the earnings before getting into the stock.
Evaluating tech stocks? Check out our top stock picks from the sector.