With GoPro Inc (NASDAQ:GPRO) at a fairly low valuation — trading at about 1.1 times sales — it’s tempting to buy shares ahead of the earnings report, which comes out on Thursday (after the markets close). But this is probably a bad idea. Keep in mind that GoPro earnings can be downright frightening for investors. Just look at its fourth-quarter earnings, which came out in early February — GPRO stock plunged 13% after that report.
This happened even though there was already quite a bit of bearishness on Wall Street. Then again, GPRO reported a grueling plunge of nearly 24% on the top line to $540.6 million and a net loss of $115.7 million. The current quarter outlook was also a disappointment, with the forecast of revenues at a range of $190 million to $210 million. Wall Street was looking for a much more robust $267.6 million.
Yet, since then, GPRO stock has gotten a bit of a lift. One positive has been the company’s latest guidance, which indicated that Q1 revenues would be at the upper end of its $190-$210 million range and that there would be non-GAAP profitability on a full-year basis. GoPro also announced a layoff of 270 jobs, as well as potential cost savings of $200 million (note that last November the company cut 200 jobs).
Despite all this, the analysts are still not too encouraged by GoPro. The consensus estimates for revenues for Q1 is $207.89 million, with a net loss of 44 cents a share. The average price target is also at a 6% discount to the current market value of GoPro stock.
OK then, what are some of the things that investors should look for in the upcoming GoPro earnings report? Well, first of all, there will likely be interest in seeing if the new buy-back program is getting traction. This initiative allows customers to exchange an old GoPro model for a Hero5 Black, with a $100 rebate (there is a $50 rebate for those who take a Hero5 Session). This program actually makes a lot of sense, as it can re-engage the customer base. It will be interesting to see how things are progressing.
Although, when it comes to GPRO stock, the most important questions will center around the product roadmap. Let’s face it, the company has had several flubs over the years. There was the awful launch of the Hero4 Session, which did not offer much of anything new for customers. And then there was the Karma drone, which had to be recalled because of quality issues. Oh, and GoPro had to deep-six its entertainment division.
Recently, the company showed off an upcoming virtual reality product — GoPro Fusion. According to the press release, it is a 5.2K spherical camera that is the “ultimate capture device for both fully immersive virtual reality content as well as conventional non-VR video and photo formats.”
It does sound intriguing. But it is important to keep in mind that the VR market is crowded, with players like Facebook Inc (NASDAQ:FB), Samsung Electronics (OTCMKTS:SSNLF) and Microsoft Corporation (NASDAQ:MSFT).
More importantly, it appears that the market has gotten off to slow start, primarily because the technology remains unwieldy and there have not been any killer applications. Something else to keep in mind: The GoPro Fusion is expected to have only a “limited commercial release” in late 2017.
So for the most part, the key for GPRO stock will be the upcoming Hero 6, which is expected to be released this year. But unfortunately, CEO Nick Woodman has provided zero details.
Although, the product could be a make-or-break event for GPRO stock. The fact is that the market is getting saturated. What’s more, if GoPro cannot continue to innovate, it will start to lose its brand appeal.
No doubt, the hardware industry is full of examples of hot companies that have flamed out — such as Palm, BlackBerry Ltd (NASDAQ:BBRY) and Nokia Oyj (ADR) (NYSE:NOK). And so far, it seems that GoPro is headed down the same path.
Tom Taulli runs the InvestorPlace blog IPO Playbook as well as OptionExercise.com, which provides interactive tools & services for employee stock options of pre/post IPO companies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
