What To Expect When GoPro Inc Reports Q1 2016 Earnings

  • GoPro is slated to report Q1 2016 earnings on May 5, 2016.
  • The company is expected to report huge top and bottom line declines.
  • The short-term outlook for GoPro remains quite murky.

Video camera manufacturer GoPro (NSDQ:GPRO) is slated to report Q1 2016 earnings on May 5, 2016. Wall Street estimates that GoPro will swing to a loss of $0.64 on revenue of $169.08M compared to EPS of $0.24 on revenue of $363.1M that the company posted during last year's comparable quarter. GoPro's own guidance points to revenue in the range of $160M-$180M, a massive 50%-56% top line contraction.

What's particularly worrying is that GoPro said that it expects its gross margins (GM) to come in at just 36%, a huge 990-basis point decline compared to a year ago. Despite the poor year-over-year comparisons, that gross margin will still be a considerable step-up from the 29.4% GM the company reported during the fourth quarter. GoPro has the dramatic price cuts on its failed Hero4 Session camera to blame for the severe gross margin contraction.

GoPro has a spotty record when it comes to beating Wall Street estimates after having failed to meet analyst expectations in the last two quarters running.

GoPro Earnings Surprise History

Quarter End
Per Share
EPS* Forecast
Dec2015 02/03/2016 -0.21 -0.12 -75
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

Source: NASDAQ

With expectations so low, can investors hope for any positive surprises during the company's upcoming earnings call? I just don't see that happening, at least not this time around. GoPro's management appears to have been blindsided by events after grossly miscalculating the popularity of Hero4 not to mention releasing competing products that have been cannibalizing sales of higher-priced high-margin products.

During the last quarter, GoPro blamed the huge loss and margin contraction on a $57M charge that the company took for obsolete tooling and excess inventory of the wrong kind. So the company was forced to rethink its product roadmap and had to undertake deep price cuts after it experienced poor sell through at retailers.

To try and remedy the situation GoPro announced that it was going to simplify its product line to consist of Hero4 Session, Hero 4 Black and Hero4 Silver cameras only. This decision to kill some of its product lines appears to suggest that GoPro's management does not have a good grasp of its core market and what consumers want and is operating on a trial and error basis.

Since then, GoPro has made some progress after announcing that it was buying video editing startups Replay and Splice, and that it was hiring former Apple (NSDQ:AAPL) design head Daniel Coster to help redesign its products. GoPro has frequently been criticized for lack of sufficient video editing software to help users edit and share their videos. So, the two acquisitions were probably the right thing to do.

But I don't believe that GoPro will be able to sell substantially more video cameras by improving the aesthetic appeal of its products. GoPro cameras are not the best-looking in the market, but the company, for all its troubles, remains the undisputed market leader in the extreme-action video capture category. What GoPro needs to do is to try and recapture its product edge by introducing more innovative products. For instance GoPro could figure a way to bring its VR cameras, that it jointly developed with Alphabet Inc-C (NSDQ:GOOG) in 2015, into the mainstream. The two companies are currently accepting applications from video-makers to buy the product at a princely $15k.

Investor Takeaway

GoPro stock made strong gains in April after news that the company was hiring a top Apple design engineer. But the stock has since given up most of those gains probably after investors realized that what GoPro needs is not better-looking cameras but more differentiated products that give it a marketing edge over rivals. Investors are already bracing for a pretty brutal report when GoPro reports its first quarter earnings and there is little reason to believe that any reprieve will be coming soon.

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