Morgan Stanley analyst Jerry Liu is sounding the alarm on GoPro Inc (NASDAQ:GPRO) following a fireside chat with CFO Brian McGee at the NASDAQ Conference. Additionally, the analyst recently hosted McGee in investor meetings on back of GPRO’s press release revealing more encouraging end demand compared to this time last holiday season. Nonetheless, Liu remains steadfastly bearish on the stock.
Specifically, GoPro management indicated 35% Y/Y camera unit growth during Thanksgiving and 33% growth on GoPro.com. GoPro included a 30% revenue growth target for next year.
In the action camera giant’s favor, Liu acknowledges, “GoPro’s sell through quarter-to-date keeps them on track to meet or even slightly beat Hero expectations for the December quarter.”
However, the analyst is concerned on two accounts: an “ambitious” revenue growth target and the Karma recall.
Liu believes that GoPro might be in dangerous of flying too close to the sun, underscoring, “We are concerned Hero end demand is not sustainable, and management’s revenue growth target in 2017 is too optimistic. Weaker demand means GoPro may not break-even in 2017 and may ultimately lead to more cost cuts […] These positive data points in November are offset by much lower sales in October.” In fact, the analyst finds that developed and emerging market growth are limited.
On November 9th, GoPro announced a recall 2,500 of its new Karma drones due to power failures during flight. Liu is concerned that the recall will damage sales as well as the brand. The analyst speculates, “GoPro can meet or slightly exceed our estimate of 2.2M Hero shipments but total revenue is likely lower than our $606M estimate for December due to Karma […] it remains to be seen whether the recall did any lasting damage to GoPro’s brand at least in the drone space.”
Ultimately, “We still see 30% revenue growth in 2017 as optimistic, as Hero 5 demand should slow and Karma relaunch timing is still uncertain,” the analyst contends.
In reaction, Liu reiterates an Underweight rating on GPRO with a price target of $8, which implies a close to 9% downside from current levels.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Jerry Liu is ranked #2,503 out of 4,285 analysts. Liu has a 56% success rate and earns 0.9% in his yearly returns. When recommending GPRO, Liu realizes 34.5% in average profits on the stock.
TipRanks analytics exhibit GPRO as a Hold. Based on 17 analysts polled by TipRanks in the last 3 months, 1 rates a Buy on GPRO, 12 maintain a Hold, while 4 issue a Sell. The 12-month average price target stands at $10.17, marking a 17% upside from where the shares last closed.