Analysts have been quick to sound the alarm on action camera developer GoPro Inc (NASDAQ:GPRO) with 3 sell ratings (Piper Jaffray, Raymond James, Robert W Baird) and 3 hold ratings (Barclays, FBN Securities, Oppenheimer) published in the last two days. This follows the release of the company’s 4Q16 earning results which saw revenue miss the consensus estimate by $35 million. But as you will see it’s not just the poor revenue that is making the market so nervous:

Cash constraints

Cash constraints could limit GoPro’s flexibility. GoPro finished the year with just $218 million of cash and equivalents which translates into about $1.60 a share. The company does have $150 million available to borrow if required- but it is unlikely to want to dip into this sum unless absolutely required.

Weak guidance

GoPro announced 1Q17 revenue guidance of $190 million- $200m which came in considerably lower than expected (compared to the consensus estimate of $267 million). “Whereas management had previously targeted double-digit revenue growth in 2017, they have walked back from his specific target given the lack of visibility,” Barclays analyst Joseph Wolf wrote.

What is more worrying is that even this guidance could be too positive. That’s the concern of Raymond James analyst Tavis McCourt who points out that “given a $200 million start in Q1, and product upgrades not expected until 2H’17, we fear the [target of $1.5 billion+ of revenue reaching non-GAAP profitability] could prove optimistic.”

High inventory

Despite the large stock decline, stock levels are still too high according to analysts. “The company noted that channel inventory declined by 15% Y/Y, but this is versus extremely elevated levels a year before. We believe that channel inventory could be around 12 weeks or so, above a more normal 6-8 week level” says 3-star FBN Securities analyst Shebly Seyrafi. And the inventory may take a while to deplete if demand does not rise.

Depressed demand

Tavis McCourt seems to sound the death bell for GoPro when he says “we are spooked by the reasonably tepid sell through trends with the Hero 5 given a robust marketing campaign… We draw the conclusion that the action camera category is clearly mature to the point that even product refreshes seem unable to drive growth.” However it is possible that GoPro’s efforts to improve sharing capabilities through a cloud-based subscription service will ultimately encourage growth.

Any good news?

The GoPro CEO gave some hope to investors when he spoke of five key priorities for the company to return to profit this year, which include improving operational efficiency, increased international expansion, and better product-market fit.  Oppenheimer analyst Andrew Uerkwitz says “We applaud management’s commitment to turn the business around and believe many of the tactics will benefit GoPro if executed well.”

The results also showed that distribution revenue improved by 170% Q/Q to $250 million. This represents 46% of revenue, up from 33% the year before and 39% in FQ3.

Consensus outlook

According to TipRanks the analyst consensus rating on the stock is moderate sell based on analyst recommendations made in the last 3 months. It’s worth noting that the one buy rating for GoPro in the last 3 months is from JP Morgan’s Paul Coster who has a 13% success rate on the stock and an average return on the stock of -33.4%.

Despite the sharp drop of about 13% from $10.97 to $9.58 on Feb 2, the average analyst share price on TipRanks still represents a -9.29% downside from the current share price suggesting that ultimately the shares have even further to fall.