Goldman Sachs Downgrades GoPro Inc To Sell, Stock Down Over 3% Pre-market

The losing streak continued for GoPro on Monday after Goldman Sachs downgraded the stock, citing “significant challenges.” This is GoPro’s second Sell rating in two trading sessions. On Friday, Citi initiated coverage on the stock with a Sell, sending the stock down by about 5%.

GoPro, IFA 2015 by Janitors, Flickr


GoPro facing “significant challenges”

On Monday in pre-market trading, the stock was down more than 3% after Goldman lowered its rating from Neutral to Sell and slashed its price target from $9.50 to $6. According to analyst Simona Jankowski, the camera maker is facing “significant challenges” with saturating action camera market, disappointing entry into drones and product roll-out issues in the holiday season.

Relying On Old-Fashioned Stock Picking, Lee Ainslie Reports His “Strongest Quarter” Ever

Lee Ainslie's Maverick Fund USA enjoyed its "strongest quarter in the fund's history" during the three months to the end of June. According to a copy of the firm's second-quarter letter to investors, which ValueWalk has been able to review, Maverick Fund USA gained 18% in the second quarter. Following this performance, the fund was Read More

“As a result of these, a significant opex ramp over the last 2 years, and restructuring charges, we forecast negative FCF until 4Q17, which could substantially reduce its cash and potentially prompt it to tap its credit facility. We see risk to Street estimates and view shares as overvalued at 0.9X EV/S, vs. comp FitBit at 0.4X,” Jankowski said.

According to the analyst, the company will continue to struggle fundamentally. Talking further about the challenges, the analyst said that the company exhibited a substandard holiday season with excess inventory at the end (pointed by a key supplier – Ambarella). It is also facing new rivals, such as YI Technology, whose products are pretty competitive with GoPro’s but are available at a lesser price. GoPro’s recent restructuring may limit its ability to differentiate through content, the analyst warned.

Nothing going right

GoPro’s shares are down by about 20% since its last earnings report in February. Though the company posted a rare profit (after four back-to-back quarters of losses), the sentiment was overall negative. The camera maker posted adjusted earnings of 16 cents per share for the fourth quarter, beating the consensus estimate of 12 cents per share. However, the company’s GAAP loss came in at 82 cents per share, compared to a loss of 25 cents per share in the comparable quarter last year, notes Yahoo.

GoPro’s R&D expenses rose almost 40% year over year, primarily due to the investment in Karma, software and the HERO5 cameras. Even the marketing expenses were up almost 36% year over year. The company has been facing issues from all sides, like production issues and delayed shipments of the HERO5 Black cameras and Karma drones, and unfriendly relationships with third-party sellers (GoPro stopped selling its products on Amazon in October due to a pricing dispute).

All these issues have weighed heavily on the company’s stock, which is down 63% over the last 12 months, compared to a gain of 19% for the S&P. The latest downgrade will just make matters worse for the stock and its investors.