GoPro Inc (NASDAQ:GPRO) has received an upgrade from JPMorgan but a warning from Citi analysts who are concerned about increasing competition. After a rough day on Thursday, shares of GoPro began to recover today, rising as much as 2% during regular trading hours.
Citi rates GoPro at Neutral
Citi hosted its 2014 Global Perspective Conference, and after that conference, the firm’s analysts had a warning for Wall Street about GoPro. The conference included a panel about the connected devices market, also commonly referred to as the Internet of Things.
According to Bidness Etc, analysts at Citi warned about increasing competition in action cameras after speaking with executives from GoPro competitor iON. After those conversations, Citi analysts said they think the expected 22% increase in revenues for next year could be too optimistic.
GoPro threatened by iON
They think after the hype around GoPro’s Hero4 camera calms down, the company may see demand for its cameras cool. They believe increasing competition, particularly from iON, will pressure GoPro’s average selling prices and margins.
One reason iON is becoming such a big threat for GoPro is because the company’s products are becoming much more widely available. Last year, consumers could buy them in 150 stores, but this year, they’re for sale in 6,000 stores. By next year, iON’s cameras will be available in 10,000 stores. Additionally, iON has ten action cameras for sale, compared to GoPro’s five cameras. The company has also tailored some of its cameras to certain activities like fishing or hiking, which GoPro has not yet done.
Downward revision possible for GoPro
They maintained their Neutral rating and $94 per share price target on GoPro in spite of their concerns, although analyst Jeremy David did say they might revise their target price downward at some point in the future.
He said if GoPro sees weak growth in international markets or fails to make progress on monetizing content, they could cut their price target. He also warned that they might slash their target if the company disappoints in holiday sales or shows signs of shrinking gross margins due to an adverse mix shift toward its less expensive cameras.
JPMorgan upgrades GoPro
JPMorgan analysts upgraded GoPro from Neutral to Overweight this week, although they maintained their price target of $70 per share, marking an interesting mix of views compared to Citi analysts. According to Street Insider, analyst Paul Coster sees a number of positive catalysts ahead, although he reminded investors that a lockup expiration is coming for some GoPro insiders soon.
The analyst notes that GoPro shares have fallen about 24% since the company’s secondary offering in the middle of last month. Because of that decline, he thinks the risk / reward has “tilted favorably. He notes some risk in the near term due to the lockup expiration, which is on Dec. 23 and opens up about 15 million more shares for trading.
Good things ahead for GoPro?
However, he named five positive catalysts he sees going forward. First, his channel checks suggest GoPro’s cameras are going out of stock during the holiday shopping season. Second, he noted the company’s brand awareness efforts coming in early January at CES.
Third, he said company’s fourth quarter earnings results were strong and states that it appears as if inventory for the first quarter is lean. Fourth, he notes that Wall Street has been revising upward its estimates for GoPro’s first quarter earnings report. And fifth, he expects strong international expansion, especially in China.
Coster said his checks suggest demand for GoPro’s Black edition camera is still strong even though the average selling price has increased by $100 to $499. He notes that the camera is out of stock in many areas. He added that sales mix is still skewed toward the Black edition as well, although demand for the Silver edition also appears to be solid.