GoPro shares tumbled during regular trading hours today, falling by as much as 16% to dip below $16 per share. The company just can’t catch a break as signs that demand is weakening continue to cash dark clouds over its future. Analysts are reporting more and more bad omens signaling that GoPro Inc (NASDAQ:GPRO) is in for a bumpy ride, at least in the near term.
Morgan Stanley downgrades GoPro
In a report dated Dec. 13, Morgan Stanley analyst James E. Faucette and his team said they downgraded GoPro from Equal-Weight to Underweight and sliced their price target nearly in half from $23 to $12 per share. They expect the company’s inventory problems to persist into next year and, what’s worse, they had bearish comments about GoPro’s opportunities in the area of drones.
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A darker outlook on drones presents a huge problem because it was previously hoped that in 2016, the company would be able to build up a new revenue stream to supplement its failing action camera line.
Session demand remains weak
GoPro cut the price of its unpopular Session camera earlier this year not long after its release because of weak demand. Then the price was reduced again this month in an attempt to attract buyers, but thus far consumers just aren’t interested. GoPro management attributes the weak demand for the Session to lack of awareness among consumers and other problems.
Faucette and his team said that so far, early indications around demand for the Session camera is improving only slightly as a result of the second price cut. They don’t believe that demand has picked up enough to meet growth expectations. The Morgan Stanley team projects about a 10% year over year growth rate.
They added that nearly all the retailers they spoke with have seen declines in sales compared to last year. Further, they believe consumer interest in action cameras is waning and has found that product availability is shifting toward cameras with lower price points.
The analysts also say that they don’t believe channel inventory will decline fast enough for GoPro to hit its targets by the end of the year, which in turn will likely reduce retailers’ commitment to the action video camera market.
Where GoPro’s real problems may lie
Faucette and his team agree but think that the biggest problems off-loading, photo storage, and editing capabilities haven’t been addressed. They note that GoPro’s cameras are mean to be used anywhere and everywhere. Because these problems have not been addressed, consumers may be less willing to invest in one of its cameras. After all, consumers want to be able to easily store their videos and also edit them for perfection.
Further, they believe that when GoPro releases the HERO5 camera next year, the video file size will become even bigger. They think the camera manufacturer must address these problems, not only to correct the soft demand for its cameras but also potentially to spur interest and demand for its upcoming quadcopter, which has been dubbed the Karma. Without improved editing capabilities, they think GoPro will struggle to sell many quadcopters.