GoPro Inc (NASDAQ:GPRO) shares are on a 5% dip today after a press release last evening offering insight behind the action camera giant’s recall of 2,500 Karma drones purchased since October 23rd.
In wake of what appears as the cancellation of a “Karma Christmas,” Piper Jaffray analyst Erinn Murphy reiterates an Underweight on shares of GPRO with a $9 price target, which represents a 12% downside from current levels.
Murphy believes, “This is not only a surprise to us, but another ding on management’s credibility having just announced both the HERO5 and Karma drone at full production. The news release cited a power failure during flight as the cause of the recall. Having connected with management tonight, we believe the recall was to mitigate any potential safety issues. In the interim, GPRO is providing a full refund to customers. Not only were we surprised by the modest level of initial units sold, but we believe it is a possibility that Karma will not be available for the key holiday season. We believe there could be further downside to our already Street low Q4 sales estimate of $545M.”
Furthermore, as of yesterday, there was a significant ramp-down with a deactivation of all the devices that were on the market, “no longer having the ability to fly” with a production ramp-down until further notice. “We do not believe that production of the Karma drone will occur before year end, further damaging GPRO’s credibility in the drone market,” Murphy contends.
Considering the news, the analyst now surmises that GPRO management guidance expectations of $625 million, implying 50 to 75k of Karma units would be sold in the fourth quarter “no longer seems feasible.”
As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, analyst Erinn Murphy is ranked #3,987 out of 4,186 analysts. Murphy has a 38% success rate and faces a loss of 8.1% in her yearly returns. When recommending GPRO, Murphy forfeits 6.2% in average profits on the stock.
TipRanks analytics exhibit GPRO as a Hold. Based on 15 analysts polled in the last 3 months, 1 rates a Buy on GPRO, 11 maintain a Hold, while 3 issue a Sell. The 12-month price target stands at $11.00, marking a 9% upside from where the shares last closed.