GoPro Inc Initiated With “Overweight” Rating: JPMorgan

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GoPro Inc (NASDAQ:GPRO) shares remain above their opening day price, and while some analysts are starting to get more cautious, others are throwing caution to the wind. Among those who have initiated with a bullish view are JPMorgan analysts, who have given GoPro an Overweight rating and $51 per share price target.

GoPro grows fast

In a report dated July 21, 2014, JPMorgan analysts Paul Coster, Paul J. Chung and Mark Strouse called VoPro “a profitable, fast-growth CE company.” They say the camera maker is currently addressing a big market and that its brand is defining a specific segment of that market, which is action cameras that shoot professional quality video but are priced at consumer prices.

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The JPMorgan team notes that although GoPro’s stock price has risen by about 71% from its initial public offering price, which was $24 per share, they see additional upside. They cite their expectations for first-time adoption of the company’s cameras in a number of “active-lifestyle categories” over the next two or three years. The analysts say even further upside could come if GoPro successfully cracks the broader market for cameras in the long term.

GoPro offers more than a camera

The analysts note that GoPro offers more than just a camera as well. While its camera is considered to be the best in the action camera segment, the company also offers “proprietary peripherals, proprietary publishing software, and branded media channels.” The result is a platform they say will be the key to the camera maker’s success. Not only can users take video using GoPro’s camera, but they can also use the company’s platform to share their POV content.

They say at the least, the “moribund digital camcorder market” is about 15 million units and that the company has managed to capture a share of that market. GoPro has shipped approximately 8.5 million cameras so far this year. They say that most likely, the company has a much bigger opportunity in active-lifestyle markets, which they estimate to be in the tens of millions. Their model reflects that opportunity, which they believe will result in more than 10 million units per annum within the next five years.

They believe that if GoPro can “radically simplify” the process of publishing media, the company can “eventually” move into the mass market and sell 30 million to 35 million units every year, which would place it in the same range as the iPod or GPS devices during their peak years. The JPMorgan team sees this as the best-case scenario for GoPro.

Estimates for GoPro

The analysts are expecting about 40% PF net income compound annual growth on 20% to 25% revenue compound annual growth through 2016. That’s based on guidance, feedback from the company’s channels, and their projections for the active-lifestyle opportunity in the near term. They estimate that about 85% to 90% of sales in that segment will be of cameras, while 10% to 15% will be in accessories.

They note that GoPro is already cash flow positive and boasts a strong balance sheet. They believe the company is “prudently managed.” They expect the camera maker’s stock to remain volatile because of uncertainty around the market’s eventual size, as well as competition and risks from execution.

Other analysts initiate coverage of GoPro

In spite of JPMorgan’s positive view on GoPro, some analysts are becoming more cautious. Today five other firms handed out Hold ratings to the company, according to MarketWatch, while one other rated GoPro as a Buy. The firms with the equivalent of a Hold rating on the camera maker are: Baird, Barclays, Citi, Raymond James, and Stifel. In addition to JPMorgan’s Overweight rating, Piper Jaffray also rated the company Overweight, which is the equivalent of a Buy rating.

Last week a few other firms also handed out ratings for GoPro, including Vertical Group, which rated the company as a Sell.

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