GoPro shares tumbled during regular trading hours today after chip maker Ambarella, which makes semiconductors for the company’s action cameras, provided a disappointing outlook for wearable camera sales. GoPro stock declined as much as 9.32% to $39.64 per share, while Ambarella shares sunk as much as 12.27% to $78.61 per share.
Ambarella earnings beat but guidance disappoints
Ambarella released its latest earnings report on Tuesday after closing bell, beating estimates for the second quarter. The chip maker posted 88 cents per share in earnings on $84.2 million in revenue, a 79% increase compared to last year. Analysts had been expecting earnings of 80 cents per share on $81.73 million in revenue. In last year’s second quarter, Ambarella reported earnings of 37 cents per share and revenue of $46.97 million.
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But the earnings and sales beats were not enough to please investors because of management’s dismal outlook on the wearable camera industry. They guided for total revenue of between $90 million and $93 million for the third quarter, which was in line with the consensus estimate of $92.3 million and about a 40% year over year increase.
Ambarella’s wearable camera business the most important
Ambarella said it expects revenue for wearable camera chips for the third quarter to decline, both quarter over quarter and year over year. Management expects this because of the timing of new camera launches from GoPro and Xiaomi. Both companies released their cameras earlier this year compared to last year.
The massive size of the selloff in the chip maker’s shares today illustrates how important this one segment is for it as investors’ worries about the wearable camera industry outweighed management’s guidance for overall revenue to be in line with expectations.
Piper Jaffray slashes GoPro price target
In a report on Tuesday night, Piper Jaffray analysts Erinn Murphy and Christof Fischer said they slashed their price target for GoPro from $72 to $54 per share following Ambarella’s guidance last night. They maintained their Overweight rating on the stock, however. Because of Ambarella’s commentary, they think it’s very unlikely that GoPro will release another new camera this year. The next version of the company’s action camera is expected to be called the HERO5.
Murphy and Fischer said their checks of GoPro camera sales suggest sales of the Session, which is much smaller than the company’s other cameras, have been ramping much more slowly compared to sales of those other cameras. Further, they say Ambarella’s comments about the wearable camera segment during the third quarter suggest that GoPro may have difficult comparisons ahead for the fourth quarter, especially if it doesn’t launch a new camera model by the end of the year.
GoPro could benefit from Karma
One bright area in Ambarella’s commentary relating to GoPro’s business is flying camera sales, which they expect to continue rising sequentially into the third quarter and also year over year. GoPro has said it is working on releasing a quadcopter drone, which the Piper Jaffray team thinks will be called the Karma. They report that the camera manufacturer registered the name “Karma” with the U.S. Patent and Trademark Office in the middle of August.
Murphy and Fischer note that the product isn’t expected to be out until next year, but they still see this as a significant opportunity.
GoPro cameras dropping off bestselling lists
The Piper Jaffray team has been tracking sales of GoPro’s cameras and said the new models are seeing sales ramp more gradually. The company released its LCD+ camera in June and the GoPro HERO4 Session in July. In regards to the already-released cameras, the analysts discovered that the HERO4 Black, HERO4 Session, and HERO3 Silver and White dropped off the list of the top 100 items in the electronics category on Amazon after spending June and July on that list.
They have found that the HERO4 Silver and the HERO have kept their ratings more stable.
Stifel cuts GoPro estimates
Stifel analyst Jim Duffy also made some changes to his model for GoPro. He agrees with the Piper Jaffray team that the company probably will not release any more new cameras before the end of the year. In addition to this, he thinks the HERO+ LCD and HERO4 Session aren’t “necessarily driving the category to new levels.”
His new fourth quarter earnings per share estimate for GoPro is 94 cents, compared to his previous estimate of $1.04 per share. That puts him in line with consensus estimates.