GoPro shares took a tumble today after a huge rally on Thursday. Analysts are indeed turning this stock’s direction with a flick of their pens, so to speak. Thursday’s rally was sparked by FBR analysts’ suggestion that Apple might want to buy the floundering action camera manufacturer, and today’s slump is the result of a massive price target from Citi analysts.
As of this writing, shares of GoPro Inc (NASDAQ:GPRO) were down 2.23% at $18.41 per share and still falling.
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Demand for GoPro cameras looks to be weakening
Citi analyst Jeremy David said in a report dated Dec. 11 that he was all wrong about GoPro. He was Neutral-rated on the company for about a year after its initial public offering because he thought the valuation was stretched. He upgraded the stock to Buy and raised his price target to $75 per share in July due to optimism on future opportunities in the area of drones and strong execution by management.
However, this morning he downgraded GoPro from Buy to Neutral and slashed his price target to $22 per share.
GoPro cuts the Session price… again
It seems as if GoPro hasn’t been able to unload inventory of its HERO4 Session camera, which hit the market earlier this year. The company slashed $100 off the original price a few months ago but has cut the price yet again, signaling that consumers just don’t like the camera as well as they liked GoPro’s other products. Also GoPro management appeared on QVC, further suggesting that demand for the company’s products is weak. After all, why would a big company like GoPro have to resort to offering deep discounts on its products and move backwards from selling at traditional retailers to a TV shopping network?
Typically, new and unknown products are introduced on QVC and other major home shopping TV networks because it’s necessary to educate shoppers and show how they work before people will be interested in buying them. GoPro is a well-established brand name that shouldn’t have to stoop so low.
GoPro has yet to recover
David said in his report that after the first price cut of the Session camera, he thought GoPro would be able to recover from the weak sell-through of the camera. He at first attributed the weakness in demand to the timing of the launch and the lack of marketing for it. However, he’s now concerned that the soft demand is part of a broader trend of weakening interest in GoPro cameras. Further, he’s concerned that the Session, which is now priced at $200, could cannibalize sales of the high-end HERO4 Silver and Black cameras.
Because of these concerns, he cut his full-year revenue estimate to $485 million and his earnings estimate to 22 cents per share, putting him far below the consensus estimates of $525 million and 40 cents per share. His previous estimates had been $526 million and 41 cents per share. He also cut his estimates for the next two years, pushing his 2016 sales estimate from $2.3 billion to $2.08 billion and his 2017 estimate from $2.98 billion to $2.67 billion.
Still hope for future GoPro products?
David thinks GoPro’s upcoming product launches in 2016 do offer some hope, particularly the Karma flying camera and the HERO5. He believes these products might trigger some upward estimate revisions after they are unveiled but noted that we are still months away from their releases. It could be May or June or possibly even later before they’re unveiled.
For now, he sees a greater risk of downward estimate revisions, particularly since GoPro got off to a slow start in the fourth quarter. He’s looking forward to the Consumer Electronics Show next month where he expects to learn more about the company’s next products and demand trends in the action camera market.
Acquisition of GoPro unlikely
The Citi analyst also addressed Thursday’s report from FBR that GoPro could be an acquisition target for Apple. He thinks this is very unlikely (and I concurred yesterday when I read FBR’s report) because while GoPro does own at least 56 patents (as of February 2015), he doesn’t think that’s enough to make the company a good target for intellectual property reasons.
Additionally, GoPro CEO Nick Woodman controls the company and would have to be willing to sell it, which David doesn’t think he will because of where its stock has been trading at. Also the company’s management has long-term aspirations to sell tens of millions of devices yearly.
David does believe more rumors of an acquisition will hit the headlines off and on in the near future, but the only thing he expects from these rumors is greater volatility in GoPro shares.