GoPro Inc Earnings Preview: Is Wall Street Too Pessimistic?

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GoPro is scheduled to release its fourth quarter earnings report on Wednesday after closing bell, and management has already given investors ample warning that their expectations will not be met by preannouncing some of the results. Management said revenue will come in at around $435 million. Wall Street is expecting the camera maker to break even on that amount.

Wall Street prepared for a poor report from GoPro

In a report dated Jan. 28, Wedbush analyst Michael Pachter and his team issued their updated numbers ahead of Wednesday’s earnings report. He’s expecting earnings of 1 cent per share, which is a penny ahead of the consensus. Before the preannouncement, he had been projecting earnings of 45 cents per share and $550 million in revenue, which was at the high end of management’s previous guide for between $500 million and $550 million in sales and earnings of 35 cents to 45 cents per share.

GoPro also gave a non-GAAP gross margin guide of between 34.5% and 35.5%, which was also far lower than the target, Pachter said.

GoPro’s sales still sluggish

The camera maker’s management said the reason the fourth quarter was so difficult was because they experienced slower than expected sell-through at retailers. The Wedbush team noted that GoPro has faced sales problems ever since it launched the HERO4 Session camera in July 2015. The camera’s poor performance caused two price cuts and worse than expected third results, plus weak fourth quarter guidance and results.

The Session now is priced at only $199, and Pachter and team expects this to weigh on both the top line and gross margin throughout at least the first half of this year. They expect the upcoming Karma quadcopter to offer “headline relief” and possibly boost margins, but probably not until the second quarter at least.

Too pessimistic?

They think the current consensus estimates for the first quarter might be too pessimistic, as they estimate sales of $335 million and earnings of a penny a share. Wall Street is estimating $298 million in revenue and losses of 5 cents per share. The Wedbush team expects GoPro to set a first quarter guidance range that “brackets” their estimate toward the high end while also posting a “modest profit.”

They add that even with a $199 price on the Session, they believe GoPro is still turning a profit on the camera. Further, the company has slashed its workforce by about 7%, which they say demonstrates a willingness to control spending.

The analysts also expect Wall Street’s full year expectations for this year to be low, but if the Karma launches by the end of the first half of the year and “resonates with consumers,” they expect it to sell between 150,000 and 200,000 units per quarter. They see brand awareness and word of mouth being the drivers of those sales. They’re also looking for GoPro’s next camera lineup by the end of the year.

Wedbush has an Outperform rating and $18 per share price target on the company. GoPro shares surged during regular trading hours today, climbing by as much as 7.1% to $11.32.

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