GoPro (GPRO) stock plummeted like a skydiver Friday despite the videocamera-maker delivering beat-and-raise quarterly earnings. GPRO stock fell as much as 14% after the opening bell before paring its losses.
In its first quarterly report as a publicly traded company, GoPro swung to profitability with strength on both the top and bottom lines, and some healthy margin expansion, too.
After excluding certain items such as stock-based compensation, GoPro earnings came $11.8 million, or 8 cents a share. That compares to a year-ago loss before items of $3.2 million, or 3 cents a share. Earnings per share beat Wall Street estimates by 2 cents.
Revenue likewise exceeded analysts’ forecast. The top line grew 38% to $244.6 million from $177.1 million last year, driven by hearty demand for the GoPro Hero 3+ Black Edition and its accessory products. Analysts’ were modeling revenue of $238 million.
Meanwhile, GoPro earnings also revealed lower costs. Gross margin — the difference between sales and cost of goods sold — expanded to 42.2% compared with 32.3% a year ago.
If that weren’t enough good news, GoPro said current-quarter earnings were running ahead of forecasts — and yet GPRO still went into freefall.
GoPro Earnings – Sell the News
Since going public in June at $24 a share, GoPro stock has nearly doubled, with some especially strong gains coming in the days leading up to its first quarterly earnings release. Indeed, GPRO added 14% in the week leading up to GoPro earnings.
That alone can set a stock up for a fall.
The idea is to buy the rumor and sell the news. So as good as GoPro earnings looked, they didn’t wow the Street enough to avoid almost reflexive selling.
As JMP Securities analyst Alex Gauna told Bloomberg:
“It looks clean to me. Maybe there’s some profit-taking from people who thought they’d get even more. Plus, there was a huge move ahead of this announcement.'”
Longer-term, there are legitimate concerns over growth prospects for GoPro. It’s not clear how large a market there is for small, mountable, shock-resistant video cameras — and nothing to prevent competitors from making a cheaper alternative.
It’s also possible that some segments of the market were concerned about the net income line in the GoPro earnings report. Analysts and the Street typically only care about adjusted earnings — that is, profit after excluding certain items and costs.
However, net income is the truest measure of profitability, and by that measure, GoPro still has none. Indeed, the company’s net loss widened to $19.8 million, or 24 cents per share, in the second quarter. A year ago, GPRO booked a loss of $5.1 million, or 6 cents per share.
Regardless of the reasons for the selloff, after jumping more than 30% in its first day of trading alone, GoPro stock still is well above water.
But it might get tougher to stay there. This year’s market has no patience for momentum stocks — or anything less than absolutely blowout earnings.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.