GoPro bulls are convinced that the second half of the year will bring about a strong recovery, particularly as they expect great things from the upcoming Karma drone and from the HERO 5 camera. However, not everyone is convinced that a turnaround is coming.

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GoPro coverage initiated at Neutral

In a report dated June 14, Longbow Research analyst Joe Wittine initiated coverage of GoPro Inc (NASDAQ:GPRO) with a Neutral rating. He noted that there is a possibility for things to turn around in the second half of the year, but he doesn’t believe there’s enough visibility to warrant the confidence some analysts and investors have in the company.

He thinks sell-through has so far continued to decline by 5% to 10% in the second quarter, and he thinks GoPro’s cameras are “already great,” so he believes it will be extremely difficult for the company to innovate enough to convince people to upgrade, similar to what’s happening in the smartphone industry. He describes his general bias on action cameras as “slightly negative” and explains that saturation is already high.

Further, he said it’s difficult to envision an app that’s good enough to spur upgrades, and he thinks it will be difficult to improve photo editing software enough to convince mainstream consumers to purchase a GoPro camera. He pointed to his recent survey of the action camera supply chain, which seems to indicate that the company is having problems moving beyond its core action sports user.

Recently executives from GoPro supplier Ambarella indicated that they expect a recovery in the action camera industry later this year, which seems to run counter to the survey.

What about the Karma drone?

On the topic of the upcoming Karma, Wittine described investor sentiment on drones as “dour,” although he sees more of an opportunity for GoPro in this area rather than cameras. After analyzing the results of his supply chain survey, he estimates that the company can grab a “meaningful piece” of the more than $1 billion market even though it is getting a late start. He adds that although DJI is quite far ahead of the company, GoPro’s retail and distributor partners are “hungry” for the company’s Karma drone and “appear unlikely to hold grudges on the delay.” The analyst adds that specs and price will be especially important.

He sees a “reasonable downside scenario” as being about $8 per share. He added that one possible scenario that could push GoPro stock down this far is if GoPro missed its full-year guidance by 10%, which would then cause investors to worry that the action camera market will be flat to down from now on before shifting into commoditization. He said a potential upside scenario would be if the company demonstrates that next year will be a growth year for its base cameras and drones, which he thinks would send shares toward about $15.

GoPro shares slumped by as much as 2.61% to $9.71 during regular trading hours on Tuesday following the analyst’s report.