Merrill Lynch Values GoPro Inc (GPRO) From A Bearish Perspective Despite Rise In Black Friday Sales


GoPro Inc (NASDAQ:GPRO) released a Black Friday sales announcement disclosing an over 35% year-over-year rise in the action camera giant’s camera unit sales during the week of Black Friday, also known as Thanksgiving Day through Cyber Monday.

Additionally, GPRO CFO Brian McGee noted that the Hero5 series, including the Hero5 Black as well as the Hero5 session have seen a 20% surge in the month of October, compared to the Hero4 launch, which includes the Hero4 Silver and the Hero4 Black. This can be attributed to robust sales overseas coupled with Hero5 Black’s overwhelming popularity.

The company has also revealed new restructuring ideas that will pull back on 15% of its workforce to achieve $650 million in non-GAAP operating expense guidance by 2017. Mostly to be pinpointed in the fourth quarter of 2016, the company also expects to incur around $24 million to $33 million in a restructuring charge, which includes a cash charge of $13 million to $18 million.

While Merrill Lynch analyst Jason Mitchell acknowledges the giant’s increase in Black Friday sales as a “positive,” he believes retailer discounts have been a driving force behind the success.

Mitchell expresses, “We view the holiday sales announcement as a potential positive, but note three points: 1) the announcements are on a sell-through basis and doesn’t reflect GoPro sell-in; 2) discounting by retailers during Black Friday week on GoPro products was much stronger vs. 2015 [….] and 3) October is the weakest sales month in 4Q and not necessarily representative of holiday demand. Hero5 Black demand seems solid and sold out at many stores during BF though some retailers ran discounts. Multiple retailers also discounted Hero Sessions and older models aggressively which may have temporarily lifted unit sell-through during BF week and could impact ASP mix.”

Overall, “While we see the workforce reduction as a step in the right direction, if camera demand falls short in FY17 or Karma is delayed past 1Q, GoPro may need to make further cuts to manage cash burn. The next potential catalyst/data point for the stock is Ambarella’s 3Q earnings (GoPro’s semiconductor provider) on 12/1 […]” Mitchell contends.

As such, the analyst reiterates an Underperform rating on shares of GPRO with a $9.00 price target, which represents a 6% downside from where the stock is currently trading.

As usual, we recommend taking analyst notes with a grain of salt. According to TipRanks, one-star analyst Jason Michell is ranked #3,526 out of 4,239 analysts. Mitchell has a 20% success rate and faces a loss of 13.5% in his annual returns. When recommending GPRO, Mitchell loses 12.9% in average profits on the stock.

TipRanks analytics exhibit GPRO as a Hold. Out of 16 analysts polled by TipRanks in the last 3 months, 1 is bullish on GoPro stock, 11 remain sidelined, and 4 are bearish on the stock. With a return potential of nearly 6%, the stock’s consensus target price stands at $10.17.screen-shot-12-02-16-at-07-52-pm