GoPro Inc (NASDAQ:GPRO) is the golden child of the action camera business, growing like a wild fire in a very short amount of time. GPRO stock is up some 90% since going public last June.
While GPRO has slumped significantly in 2015, the stock remains up 45% from its first-day close, and in the past month, GoPro stock has rallied about 7% heading into its earnings report.
However, at about $45.50 a share, GoPro has some high expectations to meet should the stock ever reach analysts’ $63 median target.
This quarter, analysts are looking for $340.99 million in revenue and 18 cents per share in profits. Getting there depends on GPRO’s relative inoculation to the stronger dollar, increased demand for wearables and new products and apps to keep brand loyalty and engagement moving forward.
So … does GPRO have what it takes?
Increased Demand for Wearables
GoPro has beat earnings estimates in each of its past three quarters, and by as much as 50%. And thanks to increased demand for wearables — partially sparked thanks to the buzz surrounding Apple Inc (NASDAQ:AAPL) and its Apple Watch — could launch GPRO to another sizzling earnings beat.
Looking more long-term, IDC estimates the global wearables market to grow from 45 million units shipped in 2015 to 126 million in 2019. Cameras necessarily will be a huge part of that, as smartphones and apps like Instagram and Snapchat have given cameras a central role in how we communicate on a daily basis.
Coming back to this quarter: Revenues likely will be driven by increased demand for GoPro’s Hero and Hero4 products. The growing competitive wearable market shouldn’t affect GoPro’s bottom line too significantly, as GPRO’s entry-level products are a considerable value to alternative cameras, and at least for now, its high-end products are considered to be far superior to the competition.
GPRO Needs Strong Brand Loyalty and Engagement
Brand loyalty and engagement are key, and downloads of its GoPro app and GoPro Studio are indicative of sentiment around the brand.
In mid-March, GoPro posted results of its Microsoft Corporation (NASDAQ:MSFT) Xbox app, The GoPro Channel. The app was downloaded more than a million times, with an average viewing time of 25 minutes a session.
That’s a promising stat, but investors will be looking for more information this quarter that might tell us more about GoPro users’ engagement. But so far, GPRO seemingly hasn’t disappointed its customers — in fact, its share of virtually the entire action camera market is making GoPro synonymous with action cams.
That’s typically the result of a happy user base.
Bottom Line
While a strong U.S. dollar has hammered American multinationals who derive much of their revenues overseas, nearly three-fourths of GoPro’s revenues come from the U.S., so expect a relatively low amount of impact on that front.
That said, GPRO isn’t untouchable.
GoPro holds an outstanding 72.5% market share in point-of-view camcorders, and a dominant 56.7% globally. But that’s pretty much GoPro’s market. Entries by Garmin, Ltd. (NASDAQ:GRMN) and other more established tech companies would certainly threaten GoPro stock should they gain traction.
Moreover, most of GoPro’s revenue comes from its fourth quarter, where holiday sales make up nearly half of all of the year’s sales for the company. It’s a risk you probably won’t think much about here during the spring, but keep a mental note for later that GPRO itself said a drop in holiday sales from unpredictable consumer shopping patterns would put a hurt on its overall financial stability.
Expect GoPro to clear the bar when it reports earnings Tuesday night, but investors should be keenly aware of lackluster guidance for future quarters, especially if you hear any mentions of “increased competition.”
Until GPRO extends its product line, that’s a severe risk all GoPro stock holders can’t ignore.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
