Q2 earnings offered proof of GoPro, Inc's turnaround. But now may not be a good time to bet on GoPro stock.
San Mateo, California headquartered GoPro (NASDAQ:GPRO) announced its Q2 earnings last week. If you have any questions on how exactly GoPro fared in the past quarter, the post-earnings movement of GoPro stock offers ample proof. Shares of the action camera maker are up by 27.3% in the 3 three trading sessions since then. To put things n perspective, consider this: The GoPro stock price was up by 5.4% for the year, prior to the earnings call. The huge post-earnings rally brings us to the question: Is GoPro stock a good buy following the latest earnings update? Is GoPro stock a good turnaround play? Before we get to the answer, let's take a quick look at the reported numbers.
GoPro Crushes Wall Street Estimates
GoPro reported revenue of $296.53 million, up 34% year-over-year and nearly $27 million over the Wall Street estimate. Coming to the bottom line, the action camera maker reported a non-GAAP loss of 9 cents per share, a significant improvement from the 52 cent loss the company had posted in Q2 2016. Q2 EPS beat the street number by 16 cents, translating to a massive beat. Q2 numbers comfortably beat the top end of the management's guidance, which put revenue expectations in the range of $260 million to $280 million.
Apart from the strong Q2 numbers, GoPro management also guided for Q3 above expectations as well, guiding for non-GAAP EPS to be in the range of -$0.01 to $0.11, on a revenue of $290 to $310 million. Both of those were significantly higher than the Wall Street consensus, which was anticipating Q3 loss per share of 35 cents on revenue of $278.5 million, prior to the earnings call. The Wall Street estimate is already up, to a loss per share of 5 cents on revenue of $304 million. With the latest quarter numbers and the story ahead starting to get factored into the models on Wall Street, expect these estimates to climb higher. But what really drove the stock higher was more than just the numbers and the guidance.
GoPro Is On A Turnaround?
The huge up move in the stock price can be tracked back to future expectations, which were boosted, both by a solid guidance as well as a concrete product plan. Following the initial hiccups, the Karma drone has started to make a positive impact, which should only increase with passing quarters. According to GoPro CEO and founder Nicholas Woodman, "Karma had a challenged start, but since its launch, it's grown to become the number two best-selling drone in the United States, $1,000 and up. And that's testament both to the product quality and user experience of Karma and as well to the strength of the brand and its ability to introduce new products." The biggest positive being GoPro's brand and ability to launch new products appear to be restored, which brings us to the next big news for GoPro stock investors. The recent international launch of the Karma drone will aid GoPro's turnaround if the company can repeat the success it has had with the product in the US market.
Even as the Karma drone begins to have a greater impact on overall revenue/margins, GoPro isn't sitting idle. The company is set to launch multiple new products in the second half of 2017, and a successful execution on this front will continue to support GoPro stock. The company is set to launch its Hero 6 camera later this year, which Charles Prober, COO of GoPro, believes will leave users 'super-impressed'. Also, Fusion, the 5.2K spherical camera, which is already in the 'Beta' stage should see the light of the day in the second half, possibly in Q3 2017. All in all, GoPro is now armed with a strong foundation and a clear plan. The most important question is: Can it put the devils of the past (Hero 4 botch up and the Karma launch delay) behind it and come up with successful product launches? Well, we'd like to wait on the sidelines for proof of GoPro's execution ability. Until then, GoPro stock continues to remain a risky buy.
To sum up, GoPro's quarter had more to it than the headline beat or guidance. It offered proof of the fact that GoPro is a strong brand, with sales beating expectations in an increasingly competitive market. However, that's now in the past and GoPro needs to leverage this foundation. With a slew of new products set to be launched in the second half of 2017, execution on the product roadmap will be the key driver of GoPro stock price over the second half of 2017.
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