Concerns about GoPro are growing heading into the holiday shopping season as signs of margin pressure and weak demand continue to appear. But is it time to relinquish those shares? Piper Jaffray analysts have become more concerned about the data points for GPRO. Meanwhile the company’s stock keeps tumbling after falling under the initial offering price of $24 per share last week.
GoPro products on flash sales sites
Analysts Erinn Murphy and Christof Fischer said they’ve noticed that GoPro’s products are starting to show up on a variety of flash sale websites. While on the surface, this many not seem like a big deal, but the Piper Jaffray team said they’re starting to worry more and more that GoPro won’t be able to keep up with expectations for its gross margins because prices on its cameras are falling. They estimate that every 50 basis points in gross margin is about 1 cent per share in fourth quarter earnings and 5 cents per share in all of fiscal 2016.
The company’s action camera line debuted on Zulily earlier this week. GoPro’s cameras have also been up for sale on Groupon and once on RueLaLa where they sold out. Murphy and Fischer said the average discount on cameras and bundled kits ranges from 16% to 34% off.
Amazon sales of GoPro cameras not thriving
The analysts have also been tracking sales of GoPro cameras through Amazon and are seeing that trends for the fourth quarter are moderating, based on racking of the top 100 electronics category on the website. They said the HERO and HERO 4 Silver are now the only two GoPro cameras left in Amazon’s top 100 electronics products. They added that the average blended ranking for GoPro’s products is 80 in the fourth quarter so far, compared to 73 in the last quarter and 52 in the second quarter.
You may remember that the company slashed the price on its unpopular Session camera from $399 to $200 in September, but that’s not the only downward pricing movement they are observing. They found that prices for the HERO 3 White and HERO 3+ Silver cameras are also trending downward.
GoPro price target to $15
Because of these concerns, Murphy and Fischer slashed their price target for GoPro from $20 to $15 and maintained their Underweight rating on the stock. In addition to margin and pricing pressure, they also noted that the company’s inventory levels are much higher this year. At the end of the third quarter, GoPro reported that its inventory was up 147% year over year, but management is actually projecting a sales decline at the low end. Their guidance for the fourth quarter is for sales to fall between a decline of 13% to an increase of 21% year over year.
The Piper Jaffray team is looking forward to Best Buy’s earnings report tomorrow, Ambarella’s earnings report on Dec. 3, and four conferences scheduled for December.
GoPro short interest at nearly half the float
Short interest in the stock has been growing steadily. At the end of October, more than 33 million shares of GoPro were sold short, which is about 45% of the float, and the days to cover was at 2.86. The company’s last earnings report troubled Wall Street greatly, and multiple firms slashed their price targets for its stock late last month following the report.
GoPro shares tumbled by as much as 8.17% to $19.17 per share during afternoon trading hours today. Trading on the stock was heavy today, with more than 12 million shares having changed hands before 1 p.m. Eastern, compared to the average daily volume of 9.63 million shares.