It’s time to stop pretending that GoPro Inc (NASDAQ:GPRO) has a chance as a standalone company. Quarterly earnings, sales and forward guidance were an unmitigated disaster, and GPRO stock was rightfully beaten up as a result.
It has been clear that GoPro stock was a dog for some time. More on this later, but the simple fact that it no competitive moat — it makes cameras — was always an existential weakness. It’s trivial for much larger competitors to attack the action-camera maker’s market share with lower prices and, yes, even sometimes superior designs. It was only a matter of time before the bottom fell out.
And boy did it ever.
GPRO stock sold off hard at the open, recovered all the way in the black — likely as shorts closed out their positions — then retreated back to nearly 10% losses. Including Friday’s declines, shares are now down 40% for the year-to-date and nearly 75% since the close of their first day of trading more than two years ago.
Indeed, the rout in GPRO stock is so severe that it even broke what was starting to look like upbeat technicals. About two months ago, shares in GoPro made a successful test of support at their 200-day moving average and carved out a golden cross. True, shares failed a test of support at the 50-day MA a month later, but the 200-day line remained firm. GoPro bounced off the key level just days ago.
But once the earnings news hit, it fell off the table. Shares broke through the 200-DMA convincingly for the first time since April. It’s safe to say that GoPro stock doesn’t have much upside momentum at the moment.
Click to Enlarge Not that it had all that much heading into the report.
Investors were right to be wary of how the quarter would shake out, and yet GoPro’s level of bad still managed to be shocking.
GoPro Faceplants Its Quarterly Report
Analysts were cautious about GoPro’s most recent three-month period. Their estimates set a fairly low bar for the company. It didn’t help. The company logged its fourth consecutive quarter of losses and missed Wall Street estimate in four of the last five earnings periods.
As for the top line, revenue missed analysts’ average projection for the second time in the previous four quarters.
That right: Even when lowballing guidance and expectations, GoPro manages to disappoint.
For the third quarter, GoPro swung to a net loss of $104 million, or 74 cents per share, from year-ago profits of $19 million, or 13 cents per share. On an adjusted basis, the loss came to 60 cents a share, which was far wider that the Street estimate for a loss of 34 cents, according to a poll by Thomson Reuters.
Revenue retreated 40% to $241 million from $400 million in the same quarter of 2015. Analysts’ average estimate pegged revenue at $319 million.
That’s a big bottom- and top-line miss, but what the market really cares about is guidance. After all, stocks represent a claim on future earnings. So when GoPro’s outlook surprised to the downside … well, that probably crushed GPRO stock more than anything else.
It now expects full-year revenue of $1.25 billion to $1.3 billion. That’s down from previous guidance of $1.35 to$1.5 billion). The Street was looking for the top line to hit $1.39 billion this year.
Production issues with the Hero5 action camera deserve some of the blame. The company’s new Karma drone also encountered production problems. This can be worked out, but it won’t address the fact that demand for the brand is waning.
Bottom Line on GPRO Stock
The knock on GoPro has always been that it faces intense competition from both established players and upstarts. It has to fend off names like Sony Corp (ADR) (NYSE:SNE) and Garmin Ltd. (NASDAQ:GRMN), as well as others like DJI and Xiaomi. It’s not all that hard to design action cameras, drones and the allied software.
When faced with such a challenge, a company really needs to rely on marketing more than anything else. Margins fell 6.2% in the quarter, so GPRO doesn’t look like it could be competitive on price.
Anytime a stock is as beaten down as GoPro is, there’s a chance that it’s a bargain. Not in this case. The trading patterns and technicals have put the stock in jail. At the same time, it’s outlook for fundamental performance can’t be trusted.
It’s not hard to find names with better risk-reward profiles than GPRO stock.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
