Will GoPro Surprise On The Upside During Q2 2016 Earnings

  • GoPro is slated to report Q2 2016 earnings on July 19, 2016 after market close.
  • The camera maker is expected to post another set of lackluster results.
  • Can any positive surprises emerge during the earnings call?.

Action video camera manufacturer GoPro (NSDQ:GPRO) is expected to report Q2 2016 earnings on July 19, 2016 after market close. GoPro no longer issues quarterly earnings guidance. The consensus on Wall Street though is for the company to report revenue of $202.3M, good for a massive 51.8% Y/Y decline and compares poorly with the year-ago quarter when revenue increased a robust 72% Y/Y. Meanwhile, the expected diluted EPS of ($0.58) compares very poorly with last year's comparable quarter of $0.35.

GoPro has missed earnings estimates for the past three consecutive quarters. There is an earnings whisper that GoPro might report a worse-than-expected diluted EPS of ($0.62), 4 cents lower than the consensus. The company might, therefore, extend its earnings misses by yet another quarter.

GoPro Quarterly Earnings Surprise History

Quarter End
Per Share
EPS* Forecast
Mar2016 05/05/2016 -0.73 -0.64 -14.06
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

Source: NASDAQ

Shares Might Have Found a Floor

Luckily, the lower-than-expected earnings, however, might not be enough to cause a huge selloff in GoPro shares post-earnings. GPRO shares have tucked on gains of 17.4% over the past five days on no company-specific news.

GoPro 5-Day Share Returns


Source: CNN Money

There are some possible explanations that can be advanced for the sudden change in momentum in GoPro stock. First off, short interest in the company had reached boiling point. Short interest had increased more than 10% over the past few weeks to cross 42% of the outstanding float. With such high short interest, it's not uncommon for a stock to be very volatile. In the case of GoPro, investors might be fearing a possible short squeeze due to factors like JPMorgan recently saying that channel checks had indicated that GoPro sales were improving and might not drop as sharply as current expectations. Other factors include the addition of award-winning TV celebrity Lauren Zalaznick to GoPro's board with expectations that she might help the company with its transition to a media company, as well as expectations for the launch of HERO5 and Karma drone and the general buzz surrounding virtual reality.

JPMorgan says that GoPro's move to kill some product lines in a bid to stem cannibalization of some of its cameras appears to be working. Additionally, GoPro has also ramped up its marketing efforts and shown off Hero5 and Karma (both are due for launch during the fall) to retailers.

GoPro's Hero5


Source: University Herald

The Hero5 is expected to breathe some life into GoPro's battered action camera business. The camera has received some positive reviews due to its versatility and might be just what GoPro needs to get out of its rut.

But even with Hero5, it might not be smooth sailing for GoPro. The action camera market is flooded with cheap cameras mostly from China. Xiaomi launched the ridiculously affordable Yi Action camera with an impressive feature set in March. GoPro cameras are already impressive enough and it's going to be tough for the company to introduce new features while still maintaining competitive pricing for its new cameras. These include features such as 8K resolution, ability to shoot 1080p videos at 120 frames per second (Hero4 can manage 120fps for 720p), and a longer battery life.

GoPro is making some progress in the promising VR market. The company recently launched a VR video app and live-streaming tools. These include a six-camera Omni VR rig that the company jointly developed with Alphabet Inc-C (NSDQ:GOOG) and that will cost $5,000 for a set of six cameras, memory cards, Kolor Software, smart remote, and cables. A standalone rig will cost $1,500. This is a completely new growth avenue for GoPro. The massive popularity of VR/augmented reality games such as Nintendo's Pokemon Go has many VR players like GoPro salivating at the possibilities. Pokemon Go has helped Nintendo shares soar 25% YTD.

Investor Takeaway

The upcoming earnings report by GoPro is expected to extend the company's latest trend of declining revenue and profits. But a lot of the bad news has already been baked into GoPro shares, which are down 31% YTD and 76.2% over the past 12 months. GoPro might not surprise on the upside but the downside to its shares might nevertheless be quite limited. Investors are beginning to focus more on the company's upcoming products, and this makes GoPro a good contrarian play over the next two years.

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