GoPro is scheduled to release its next earnings report a week from tomorrow, and although analysts generally like the company’s long-term prospects, at least two firms have slashed their price targets for its stock. Analysts from Wedbush think the recent selloff in GoPro shares is overdone, while Citi analysts believe the camera maker’s risk/ reward profile is “highly asymmetric.”
This week’s two new price target cuts follow a pair of cuts from last week by Dougherty & Company and Piper Jaffray and another from the week before last by Morgan Stanley.
Wedbush slashes GoPro target to $50
In a report dated Oct. 19, Wedbush analyst Michael Pachter and his team said they maintain their Outperform rating but slash their price target from $76 to $50 per share. They’re expecting GoPro to beat estimates again, but they think the magnitude of the beat will be smaller than it has been in previous quarters because of “softening demand for unimpressive new products.”
They’re projecting $455 million in revenue and earnings of 35 cents per share—both numbers which are ahead of the consensus estimates of $434 million and 29 cents per share in earnings. GoPro management guided for revenue of between $430 million and $445 million and earnings of between 29 cents and 32 cents per share.
GoPro’s newest product doesn’t impress
The Wedbush team said they continue to expect the more expensive HERO4 Black and Silver models to make up more than half of GoPro’s sales for the third quarter. Analysts from more than one firm have commented repeatedly on how weak demand for the newest Session camera has been since it was launched over the summer. In fact, its performance has been so lackluster that GoPro trimmed $100 off the price not long after launching it. Pachter and his team also expect the least expensive HERO camera to start closing the gap with the more expensive models in terms of units.
They noted that GoPro has been consistently beating the high end of management’s guidance by a wide range of $15 million to more than $50 million. They’re expecting the beat to be closer to the low end of that range.
Looking to the fourth quarter
For the fourth quarter, they’re now estimating $700 million in revenue and $1.06 per share in earnings, which are lower than their previous estimates because now it looks unlikely that there will be any new cameras before the end of the year. The consensus estimates are $694 million and 83 cents per share, but they think those numbers are too low because in last year’s fourth quarter, GoPro managed 99 cents per share in earnings on $634 million in revenue.
Further, the Wedbush team notes that GoPro’s sales mix tends to shift toward the more expensive devices, which of course is good for margins. Also they said the current cameras “should” be popular during the holiday shopping season and that their revenue estimate for the December quarter might even be too low.
Citi cuts GoPro’s target to $75
In a report dated Oct. 20, Citi analyst Jeremy David said he maintains his Buy rating but slashes his price target for GoPro from $90 to $75 per share. Interestingly, even though his price target is higher, his earnings estimates are lower than those of Wedbush. He’s projecting revenue of $425 million and earnings of 27 cents per share.
He expects GoPro to guide for fourth quarter revenue of between $510 million and $540 million, missing the consensus estimate of $691 million by a wide margin. He also expects the company to guide for a huge miss on fourth quarter earnings with a range of 35 cents to 40 cents per share, compared to the consensus estimate of 83 cents per share. David is estimating revenue of $526 million and earnings of 37 cents per share for the fourth quarter.
Looking to GoPro’s next products
The Citi analyst also called the risk/ reward profile for GoPro “highly asymmetric,” as he said his bear case is a mere $15 per share, while his bull case is $90 per share. He especially likes GoPro’s potential next year, as the company is expected to release the HERO5 and a flying camera in the first half of the year. He expects both products to be positive catalysts for sentiment and result to upward revisions for earnings estimates.
Further, David expects GoPro shares could rally either on or not long after a guide-down for the fourth quarter because a lowered bar could make beat and raise quarters become possible again.
As of this writing, shares of GoPro Inc (NASDAQ:GPRO) were up 2.4% at $30.35 per share in late afternoon trades.
