The last twelve months haven’t been easy ones for owners of GoPro Inc (NASDAQ:GPRO). GoPro stock has fallen from a high near $64 in August of last year to a less than $9 in May of this year, and the current price of $11.14 still leaves GPRO within reach of record lows.
The cause, of course, is the company’s failure to maintain the red-hot growth rates its action cameras were seeing just before GPRO stock’s IPO in mid-2014.
The first quarter’s top line of $183.5 million, for instance, was 49% lower than the year-earlier revenue tally, and the company swung to a sizeable loss.
Fanning the bearish flames that singed GoPro stock in the meantime was news that the debut of its ballyhooed drone had been pushed back from the middle of this year to the end of it, leaving investors wondering if GoPro was facing unseen problems.
That’s what makes Wednesday’s post-close earnings report from the consumer technology outfit such an important one — it could be the one that prompts traders into throwing in the towel, or sticking with the stock on hopes the turnaround effort is getting traction.
GPRO Earnings Preview
As of the latest look, analysts collectively expect GoPro to post a loss of 58 cents per share on sales of $194.31 million for the second (and calendar) fiscal quarter of 2016. Both are well below the profit of 35 cents per share of GPRO and top line of $419.9 million reported for the same quarter a year earlier.
The expectations suggest a continued deterioration of results that started to wane in the fourth quarter of last year. Most observers feel a combination of saturation and competition set up the headwind.
GoPro has missed its earnings estimates in each of its last three quarters.
Three Things to Mull About GPRO
While action cameras are at the core of what drives GoPro stock higher or lower, it’s relatively well understood at this point that action cameras aren’t necessarily a mass-market product. That’s all priced in. The unclear variables will inspire the buyers or sellers to push the stock around. The three big variables are:
1. Drones: While drones have been a hot button with current and prospective owners of GPRO stock, truth be told, they won’t likely be a game-changer for the company, even when GoPro finally unveils its entry into the arena later this year. Oppenheimer analyst Andrew Uerkwitz thinks drones will only drive 4% of the company’s 2016 revenue, even though it will be launching its first drone (no pun intended) right in front of the all-important holiday shopping season.
Then again, a ton of revenue right now was never the point. For GoPro, a successful drone debut is a matter of perception. If the company can get a good one on the market, investors will view GoPro stock in a positive light. A little good publicity would go miles for the stock.
2. Consumer friendly platforms: One of the chief complaints of GoPro’s action cameras is the difficulty of using its video-editing software. To its credit, the company has been working on making it easier to do, and has achieved success on that front. There’s still more it could do, however.
It’s not just more user-friendly video-editing technology, however. One thing that has bugged GoPro stock owners from the beginning is the limited ways to share those videos with an audience that cares (and may even pay for it).
To that end, GoPro has also become something of a social media company in itself, setting up a place to upload video, and offering prizes for the best of those clips. Still, GPRO hasn’t fully answered the questions “why would I want to go to the GoPro upload site and watch videos shot with its action cameras?” It’s getting closer to an answer though.
3. Augmented reality: While Sony Corp (ADR) (NYSE:SNE) and Facebook Inc (NASDAQ:FB) have been doing the most work to make virtual reality a real product, it was Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY) that arguably ushered in the era of virtual reality, playing right into the hand GoPro is holding.
Nintendo’s Pokemon Go game melds the real world with the fantasy world, identifying digital creatures seen only through the lens of the Pokemon Go smartphone app, as if they were right there in a parking lot, in a grocery store, in a restaurant, etc.
Although GoPro doesn’t have any augment reality tech in the works near ready for any kind of launch, the idea of AR aligns with the GoPro’s 360-degree hardware. It remains to be seen what, if anything, GoPro does with it, but Pokemon Go mania has proven the premise draws a crowd.
Bottom Line for GoPro Stock
The good news is, at least one analyst thinks GoPro is apt to top earnings estimates. JPMorgan made a point of restating its “Overweight” rating on GPRO stock late last week, based on the likelihood of a beat. JPMorgan also underscored its $17 target price on GoPro stock.
A beat may well turn the heat up on the stock’s gain from May’s low. At some point though, GoPro is going to have to start growing the top and bottom line. Even with a beat on Wednesday, GoPro still may not be in a position to do that.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
