GoPro Inc (NASDAQ:GPRO) shares are plunging 11% after what one analyst already saw as the writing on the wall: a negative preannouncement. Just how negative was this preannouncement? CEO Nick Woodman is chopping his cash compensation in 2018 to a single dollar on the heels of a season that saw the HERO5 Black’s debut see “soft demand.”
Though the GPRO team had once been anticipating a range of $460 million to $480 million in fourth quarter revenue, the action camera maker now calls for just $340 million. Additionally, the new guide takes under account a dismal effect of roughly $80 million for price protection on the HERO6 Black, HERO5 Black, and HERO5 Session cameras, and the Karma done. Without the negative $80 million impact, GPRO would see a non-GAAP gross margin between 44% and 46%. Additionally, the company is confronting a whopping workforce reduction of 250 cups, leaving under 1,000 employees left under the company’s workforce around the world.
Why the sudden sharp turn left in confidence for a bull who knew to abandon the action camera maker even before these rocky results made their way through the Wall Street grapevine? After a chat with supply chain contacts on Friday, looking for further “color” on what to expect for the tech player’s fourth quarter turnout, the picture is not one that can keep even the former bull’s positive sentiment anymore- at least not “with a straight face.”
Therefore, Longbow analyst Joe Wittine already seeing the crystal ball knew to ‘shelve’ his recommendation to Buy, downgrading to a Neutral rating on GPRO stock without listing a price target. (To watch Wittine’s track record, click here)
Wittine explains that even with questionable timing, as this month has a real chance to signify a “low point” in the tech company’s investor sentiment this year, with the analyst pointing to “multi-prolonged 2018 product cycle” and “cost cut benefits,” before tomorrow’s investor meeting at the international Consumer Electronics Show (CES), he simply can no longer advise to buy this stock.
Boiling down his key insights from discussing GoPro’s opportunity with some high level supply chain contacts, the analyst highlights: “(1) the holidays missed GPRO’s plan, particularly in the West; (2) late quarter $100 price cuts were a partial mitigating factor – benefiting HERO5 Black – but not enough to save the quarter, as the now $200 price gap, e.g. $299 vs. $499, rotated some demand away from HERO6 Black [note GPRO subsequently cut H6B to $399.99 over the weekend]; (3) 12/31 channel inventory is not unhealthy, but also not lean enough to create the material 1Q sell-in catalyst we had hoped for; (4) positively, the new entry level camera is slated for 2Q at the latest, with retailers hoping-for a sub-$200 price point (product has not yet been unveiled to partners); (5) despite last week’s rumored drone headcount reductions, a revised KARMA is forthcoming in 2H, likely unveiled with the typical September launch for 4Q holiday availability.”
The holiday season proved sluggish for the action camera maker, leading the GPRO team to scale back its HERO5 prices, and even so, consumer reaction was not what had been anticipated. Wittine points out a quote that stands out from his conversations is a supply chain contact looking for a year of more challenges lying ahead for GoPro.
Though the analyst believes there could still be upside yet this year, he ultimately guides investors to wait it out through the forthcoming fourth quarter results and first quarter outlook “first.”
TipRanks points to a largely cautious Wall Street, with the sidelines gaining a new analyst now hedging his bets. Out of 4 analysts polled in the last 3 months, only 1 remains bullish on GoPro stock, with 3 remaining sidelined. With a return potential of nearly 42%, the stock’s consensus target price stands at $9.50.