Analysts from Needham as well as from Goldman Sachs are indicating bearish forecasts on Snap Inc (NYSE:SNAP) and GoPro Inc (NASDAQ:GPRO), with shares for both companies on the downturn this week. Whereas Needham sees no lotto win in the pot waiting for those who choose to risk their dollars on the wild wager for Snap, Goldman Sachs sees fit to now sound the alarm on GoPro’s prospects after a series of rocky blunders. Let’s take a closer look:
Snap Sweepstakes- The Unfavorable Numbers Game
Snap shares were crashing 12% yesterday and are continuing to fall 5% today in pre-market trading. Needham analyst Laura Martin agrees with the negative sentiment on the Street, choosing to not bet on this “lottery-like” stock, as she believes the overwhelming risk for odds do not outweigh the potential big pay-off.
As such, the analyst initiates coverage on Snap with an Underperform rating and a suggested price target between $19 to $23, which represents between an 18% downside and just under 1% downside from where the stock is currently trading.
With regards to the Snapchat parent company’s weaknesses, the analyst notes that “a close scrutiny of SNAP’s fundamentals uncovers the following risks: 1) SNAP’s total addressable market (TAM) in is 80% smaller than FB’s; 2) SNAP already has 50% penetration of its TAM in the US; 2) SNAP has no ability to prevent “fast followers” from stealing its best ideas; 3) Our $3.3B revenue estimate in 2019 requires SNAP to have a 14-16% share of Adjusted Mobile or Adjusted Digital Ad spending by 2019, up from 2% in 2016; 4) Even if SNAP grows revenue 8-fold to $3.3B by 2019, its share price would decline based on FB & GOOG EV/ Sales ratios; 5) no clear path to profitability before 2020; and 6) the academic literature suggests poor first-year performance.”
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, five-star analyst Laura Martin is ranked #110 out of 4,511 analysts. Martin has a 65% success rate and garners 17.8% in her annual returns. When recommending SNAP, Martin earns 0.0% in average profits on the stock.
TipRanks analytics exhibit SNAP as a Sell. Out of 7 analysts polled by TipRanks in the last 3 months, 2 remain sidelined on Snap stock and 5 are bearish. With a loss potential of 26%, the stock’s consensus target price stands at $17.50.
GoPro Poses Risk to Street Projections with Overvalued Shares
GoPro shares were falling almost 8% in the wake of Goldman Sachs analyst Simona Jankowski‘s decision to get bearish on the action camera maker, deeming the shares “overvalued.” Anticipating a rough battle ahead with plagued fundamentals, the analyst reduces estimates under consensus and downgrades from Neutral to Sell on GPRO while cutting the price target to $6, which represents a 26% downside from where the shares last closed.
Taking under account weak revenue outlook, the analyst pulls back on 2017 non-GAAP EPS from ($0.62) to ($0.70), for 2018 from ($0.30) to ($0.31) and for 2019 from $0.40 to $0.13. Confronting a massive rise in operating expenses these past couple of years coupled with restructuring costs, the analyst projects negative free cash flow through the fourth quarter of this year as well as a subsequently meaningful reduction in cash. In fact, Jankowski fears the problematic cash factor could lead the action camera maker to “tap its credit facility.”
Considering “GoPro faces significant challenges following saturation of its core action cameras market, product rollout issues in the holiday season, and a disappointing entry into the drone market,” the analyst sees fit to step down from the sidelines, skeptical on GoPro’s path moving forward.
Ultimately, “In its core action camera market, the company exited a disappointing holiday season with excess inventory, as noted by key supplier Ambarella (AMBA). It also faces a new competitor, YI Technology, whose products are competitive with GoPro’s but at a $100 (25-33%) lower price point. Meanwhile, GoPro’s recent restructuring, which eliminated its entertainment group, may reduce its ability to differentiate through content. In drones, GoPro’s new entry with the Karma lags competitor DJI in several key features and performance metrics, which makes it unlikely that it will gain significant share,” Jankowski contends.
According to TipRanks, Simona Jankowski is ranked #409 out of 4,511 analysts. Jankowski has a 64% success rate and realizes 11.1% in her yearly returns. When recommending GPRO, Jankowski yields 0.0% in average profits on the stock.
TipRanks analytics demonstrate GPRO as a Sell. Based on 12 analysts polled by TipRanks in the last 3 months, 5 maintain a Hold on GoPro stock while 7 issue a Sell. The 12-month average price target stands at $8.31, marking a 2% upside from where the stock is currently trading.