GoPro is scheduled to release its next earnings report on April 28 after closing bell. Recent data points have suggested that demand for the company’s cameras was better than expected during the March quarter. However, analysts from at least two firms are remaining on the sidelines based on the action camera maker’s current valuation.

GoPro

GoPro demand looks good

In a report dated April 22, Morgan Stanley analysts James Faucette, Meta Marshall and Yuuji Anderson maintained their Equal-weight rating and $57 per share price target on GoPro. Their forecast of 1.3 million units suggests a 50% quarter over quarter decline in sell-through rates because the first quarter is typically seasonally slow. The estimate also assumes retailers collected “well over two weeks” of inventory.

However, their checks suggest that sell-through rates may only have fallen by between 30% and 40% in the March quarter. They also estimate that GoPro may only have added about two weeks to its inventory channel fill.

GoPro seeing strong sell-through rates

The analysts also see potential upside for the second quarter because of “the widening breadth in activity” at many specialty retailers like skating, photography and music stores. They said specialty retailers didn’t appear to have received enough stock during the holiday season and thus are now seeing high sell-through rates.

Further, the Morgan Stanley team said it doesn’t appear as if GoPro’s average selling price faced much of a headwind because just like during the holiday season, most retailers only carried the newest Hero4 models.

Because of their checks, they think GoPro will exceed management’s guidance of between $330 million and $340 million in revenue. The consensus estimate is at the high end of guidance at $340 million.

GoPro must improve software platform

The Morgan Stanley analysts said they continue to rate GoPro at Equal-weight because the company needs to improve its software platform. This is a case they have been making for months, saying that GoPro must lead the charge in automating video editing and sharing through its own platform.

If the action camera maker is able to innovate in the area of software, solving problems in storage, editing and sharing videos, then it will be able to keep its premium pricing. They also think that software innovation will help GoPro expand its addressable market beyond the point-of-view category, of which IDC estimates it holds 67% of the market.

GoPro brand stands up to competitors

In their report also dated April 22, Stifel analysts Jim Duffy, Molly Iarocci and Peter McGoldrick said they also see room for upside to GoPro’s earnings report next week. They say the company’s brand has continued to stand up to the competition, remaining dominant in spite of competing products from other companies being introduced. Like the Morgan Stanley team, they picked up signs of strong demand through the first quarter.

The Stifel team expects GoPro to report adjusted earnings of 17 cents per share, compared to the consensus estimate of 18 cents per share, on revenue of $343 million, compared to the consensus of $341 million. They’re estimating shipments of at least 1.4 million cameras and a 10% decline in average selling price. They think these numbers will prove conservative, however.

GoPro investing heavily in next products

They also pointed out that GoPro has been investing heavily in new products, making the visibility of its next products more and more important. The company guided for selling, general and administrative expenses of between $112.5 million and $117.5 million for the first quarter. That would be a growth rate of between 48% and 55%.

As a result, they think investors will be paying even more attention to GoPro’s next products, particularly the Hero5 cameras which should be coming out later this year. They also think investors will pay close attention if there is any talk about adjacent categories like drones.