Legal Troubles Likely to Continue Haunting GoPro (GPRO) Stock: Morgan Stanley

As its longstanding lawsuit begins to accelerate, GoPro (GPRO) finds itself with its back against the wall.

In January 2015, fellow video production action camera maker Contour sued GoPro, alleging that the firm’s products infringe on two of Contour’s patents. These patents protect the technology that enables content being recorded by a portable digital video camera to be simultaneously transmitted and streamed from a different device, such as a smartphone. GoPro refers to this feature as “wireless capability,” and Contour is seeking permanent injunction against all GoPro cameras that utilize this feature.

The first ruling for the case came in October 2016 when the Patent Trial and Appeal Board ruled that GoPro failed to provide sufficient evidence to invalidate Contour’s patents. However, GoPro appealed the case in July 2018 and was granted a stay. Presently, two concurrent cases are at hand that stem from the 2015 lawsuit filed by Contour. The primary case deals with the initial infringement of patents, while the other assesses the validity of the patents themselves.

Morgan Stanley’s Erik Woodring commented: “While we are not assessing the legal standing of either party’s claims, GoPro has now seen their petition against the validity of Contuor’s patent struck down by the PTAB twice, which would seem to be a more negative than positive development.”

As a result, Woodring reiterated an Underweight rating on GPRO stock, but kept his price target at $5.00, which implies nearly 20% upside from current levels.

“While we expect a conclusion to the patent infringement case to likely be multiple quarters (if not years) away, ultimately we see the risk as skewed to the downside for GoPro given they are the defendant in the case, and therefore could potential be subject to some form of an injunction or monetary compensation in a bear case scenario, and the status quo (perhaps Contour would owe GoPro legal fees, for example) in a best case scenario,” Woodring added

All in all, Wall Street is not rooting for GoPro stock’s success, earning a weak analyst consensus rating. TipRanks analytics exhibit GPRO as a Moderate Sell. Based on 3 analysts polled in the last 3 months, 2 rate the stock a Hold, while one calling the stock a Sell. However, the 12-month average price target stands at $6.17, marking over 50% from where the stock is currently trading. Though this may simply be the result of analysts’ inability to turnaround new price targets quickly. (See GPRO’s price targets and analyst ratings on TipRanks).

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