We’re only halfway through the first month of the year, and already 2016 has been brutal to GoPro. After topping $20 a share early this month, the stock has tumbled to new all-time lows this week amid an announcement about job cuts, a negative earnings preannouncement, and multiple price target reductions from analysts. So has the action video camera maker run out of gas entirely, or will drones and other new technology turn things around? Things are looking shaky, at least for now.
GoPro makes negative preannouncement
GoPro’s negative preannouncement came the same week Morgan Stanley analysts noted that there haven’t been very many so far for the fourth quarter. The company’s stock dived 25% on Thursday after the news, and shares continued to decline today, falling by another 6.81% to as low as $11.63 per share during regular trading hours.
The Hero4 Session camera continued to weigh on GoPro’s top line as the company reported preliminary revenue of about $435 million for the fourth quarter, widely missing the guidance range of between $500 million and $550 million. The consensus estimate was $512 million in revenue. GoPro took a hit of $21 million in connection with price protection charges from the second price cut for the Session camera, which came in December as the company attempted to clear inventory of the failed device.
GoPro estimated its non-GAAP gross margin at between 34.5% and 35.5%. The company will release its full earnings report on Feb. 3 after closing bell.
Wedbush slashes price target for GoPro
In a report dated Jan. 14, Wedbush analyst Michael Pachter and team said they have slashed their price target for the camera maker from $33 to $18 per share, although interestingly, they maintained their Outperform rating on the stock. They noted that the Session camera continues to weigh on GoPro’s results as it was the main cause of the third quarter earnings miss and fourth quarter guidance and sales misses.
They added that the second price cut on the Session appears to have weighed on the company’s gross margins in addition to its sales, although they did see that some other Hero4 cameras were also discounted over the holiday shopping period as retailers attempted to boost sell-through of the devices. The Wedbush team added that the current fourth quarter guidance suggests that GoPro may break even or post a loss. Pachter and team didn’t really indicate why they still rate the company’s stock at Outperform despite all the problems.
Wedbush wasn’t the only firm to slash its price target for the camera maker following the negative preannouncement. JMP Securities analysts cut their price target from $90 to $21 per share and JPMorgan cut its target from $42 to $21 a share, reports Reuters. Cowen & Co. cut its target from an already-bearish $18 down to $11 a share and at least four other firms also cut their targets.
Is GoPro done for?
Much of the bull thesis for GoPro hangs on whether it can find success in drones. The company is planning to release its first drone in the first half of this year. Baird analysts don’t expect a recovery until the second half of this year when it might start benefiting from the research and development it did on new devices last year.
Jan Dawson, chief analyst for Jackdaw Research, told The Wall Street Journal that while GoPro completely “misjudged the market” on the Session camera, so far that is the only camera it has messed up. The analyst suggests that it’s possible the camera maker will rebound once the much-hated tiny camera is flushed from the market.
