Last Minute Thought: Buy or Sell GoPro (GPRO) Stock Before Q4:18 Earnings?

GoPro (GPRO) is expected to release earnings after the closing bell today, as investors are eager to see how the action camera-maker performed during the holiday season. Expectations are high, especially after CEO Nick Woodman said that the company didn’t have an unexpected hiccups during the holiday season and high praise for its new Hero7 Black camera. But the company has failed investors many (many) times before, so some are concerned that a weak report could send the stock into a freefall.

Ahead of the print, Wedbush analyst Michael Pachter reiterates a Neutral rating on GPRO stock, while lowering his price target to $6.00 (from $7.00), which still implies about 16% upside from current levels. (To see Pachter’s track record, click here)

While Pachter says the company has had “two years of generally poor execution,” the analyst is more confident in the stock amid “improving operating results and more granular guidance.” He says, “should GoPro meet or surpass its FY guidance and either maintain or raise Q1:19 guidance, we think management can regain investor confidence,” but lowers his price target due to “uneven execution and the general market pullback.”

On the impending Q4 results, Pachter expects “revenue of $390 million vs. consensus of $369 million and guidance for $360 – 380 million, as sales of HERO7 Black appeared solid throughout the holiday quarter.” He lowers his EPS estimate to $0.31, from $0.34 but this is still more optimistic than the consensus of $0.25.  

On the holiday season, Pachter noted, “GoPro learned last year that it must offer some incentive to price conscious holiday shoppers to drive sales….this year it offered discounts on its HERO7 Silver and White models, while generally leaving its Black model pricing intact given solid sell through leading up to the holiday period.” The analyst says indications point to strong Black Friday “sell-through on Silver and White, while Black appeared to be a top seller throughout the quarter, without discounting.” Furthermore, Pachter thinks “GoPro managed Silver and White inventory well, not overloading the channel in the quarter.”

Besides products, Pachter expects “continued growth in ‘GoPro Plus’ subscribers,” which comes with very high margins. The analyst points to an opportunity, as only 25% of users are even aware of this subscription, which costs $4.99 per month. He says that “GoPro must enhance its marketing campaign to reach its users, but it also must reach its non-core demographics to expand its installed base. Should it achieve this by marketing its lowest-priced cameras, it could drive outsized growth in ongoing subscription revenue, and upside to Street estimates.”

All in all, GoPro isn’t a very popular stock for Wall Street analysts. TipRanks analysis shows only two analysts rating the stock in the past 3 months, with one analyst recommending Buy and one recommending Hold. There is an $8 price target, representing a 56% increase from current levels. (See GPRO’s price targets and analyst ratings on TipRanks)

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