GoPro stock climbed as much as 6.16% to $55.32 per share in early trading this morning after analysts at Barclays upgraded it because their concerns about it are fading. They upgraded GoPro from Equal Weight to Overweight and raised their price target from $50 to $65 per share.
GoPro brand remains strong
In a report dated today, Barclays analyst Joseph Wolf and his team said their previous concerns were valuation, compressing margins, execution, size of the addressable market, and monetization of media content. They added that the action camera manufacturer’s brand remains very strong, which has helped boost their optimism in its stock.
Further, they boosted their estimates due to “reasonable expectations” for the recently announced Hero4 Session and GoPro’s upcoming drone. Their revenue estimate moves to $2.406 billion from $1.854 billion for 2016. For earnings in 2016, their estimate moves from $1.26 to $2.03 per share. These higher estimates suggest a greater valuation for the company.
Concerns about hardware, margins
One concern about GoPro which bears have had for quite some time is commoditization. It makes sense that every type of hardware eventually becomes a commodity, but the Barclays team notes that GoPro was the creator of its category and that the company’s share loss is still at the low end.
They were concerned about mix and margins as the company reported further unit growth and expansion of its customer base. However, they also noted that GoPro’s gross margin increased from 42% in the second quarter of last year to 45% in the first quarter of this year. The margin expansion indicates that the mix shift for the company’s cameras is skewed toward the higher end models.
GoPro expands market
Further, the Barclays team likes management’s execution since the company’s initial public offering. GoPro recently unveiled the Hero4 and the smaller Session camera to further cement its position as the action camera leader. They expect the company to increase its lead even more with the advent of technologies like 360-degree video, drones, improvements in software, and the content portal.
At the time of GoPro’s IPO, Wolf and team were concerned about the company’s total addressable market. They’re no longer worried about this, however, as they’ve seen signs that the market is expanding. Their unit estimate is now significantly higher than it was a year ago, as they’ve moved it from 6 million to 7.2 million for this year.
Further, the addition of the Session and drones means GoPro will further expand its addressable market.
GoPro monetizes media
GoPro management revealed plans to create a strong content channel and expand into media, and the Barclays analysts like their execution in this area so far. They’re no longer worried about contributions from media, particularly since the camera manufacturer has seen solid growth in hardware units and its shares have declined.
Also the analysts like some of GoPro’s recent hires, including Zander Lurie, formerly of CBS and Guggenheim Media, and former Hulu executive Charlotte Koh. Both hires point to the company’s aspirations in this area and plans to focus on media by creating a strong portal and improving tools for editing and production of videos. The Barclays team sees an “interesting avenue for brand extension” through media content.
