Wedbush analyst Nick McKay is offering an earnings introspective from the sidelines on Glu Mobile Inc. (NASDAQ:GLUU) and GoPro Inc (NASDAQ:GPRO), ahead of Glu’s fourth-quarter results due tonight and following GoPro’s fourth-quarter print released February 2nd. Considering Glu’s evergreen franchise declines and GoPro’s removal of prior guidance in the double-digits, the analyst sees plenty of reasons to remain cautious.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Nick McKay is ranked #4,269 out of 4,381 analysts. McKay has an 11% success rate and confronts a 31.6% loss in his annual returns. When recommending GLUU, McKay earns 0.0% in average profits on the stock. When rating GPRO, McKay forfeits 37.6%.
Let’s dive in:
Glu’s Shares Could See Weakness
As Glu prepares to deliver its fourth-quarter print this evening, McKay anticipates the Crowdstar contribution will allow the mobile game maker to either reach or outclass its bookings guidance, even amid a persisting downturn for “many of its evergreen franchises.”
Nonetheless, until the evergreen games regain more ground, ahead of earnings, the analyst reiterates a Neutral rating on GLUU with a price target of $2.25, which represents a 10% increase from where the shares last closed.
For the fourth quarter, the analyst predicts $47 million in bookings, $(6.1) million in adjusted EBITDA, and $(0.06) in non-GAAP EPS, compared to consensus expectations of $47 million, $(8.7) million, and $(0.07), respectively. Guidance has called for $46 to $48 million in bookings and $(4) to $(2) million in adjusted EBITDA. As far as outlook, “Shares could see weakness if initial FY:17 bookings guidance is well below consensus of $216 million,” continues the analyst.
Regarding potential implied guidance of $176 million, should Crowdstar’s bookings run rate take a dip to $40 million, McKay believes, “Such a decline would make sense, especially given Glu’s expectation that its bookings excluding Crowdstar will be down. Many investors would view a decline below that level as unacceptable, particularly as Glu was too optimistic about 2016 early on. In November 2015, it expected the midpoint of the revenue range to be $275 million. A year later, bookings guidance was $202 – 204 million. We saw the restructuring plan announced in January that shifted Racing Rivals to a new developer as an indication Glu is not willing to tolerate sustained declines for its evergreen titles.”
Overall, “We are not prepared to recommend Glu shares until we see evidence that its evergreen games focus is generating results, although the acquisition of Crowdstar should boost near-term performance,” McKay surmises.
TipRanks analytics exhibit GLUU as a Buy. Based on 4 analysts polled by TipRanks in the last 3 months, 1 rates a Buy while 3 maintain a Hold. The 12-month average price target stands at $2.68, marking a nearly 6% upside from where the stock is currently trading.
GoPro Struggles Following 4Q Miss and Q1 Guide Shortcomings
GoPro shares are falling almost 6% today, on a continued descent ever since the action camera giant posted disappointing fourth-quarter earnings last Thursday. McKay attributes the top-line miss to GoPro paying “[…] the price for supply issues once again,” and does not see any easy paths clearing for the company any time soon.
In reaction, the analyst reiterates a Neutral rating on shares of GPRO with a $9 price target, which represents a 2% increase from where the stock is currently trading.
For the fourth quarter, GPRO brought in $541 million in revenue, a significant miss considering consensus called for $575 million and guidance had a forecast in the range of $600 to $650 million. Between problems with production that led to retailers withdrawing marketing backing coupled with the Karma drone recall that cost GoPro 10% of its total revenue, the print was full of weaknesses. The analyst adds, “We were surprised by the lack of a pre-announcement given the magnitude of the revenue shortfall and a slew of recent press releases […]” The one positive of the quarter was GoPro’s ability to meet the midpoint of its guidance estimate for EPS.
However, what really has investors scrambling in apprehension is the striking of all previous high-level forecasts for 2017 as well as guidance that vastly underperformed expectation. Once in the double-digits for both a rise in revenue and non-GAAP net income, management has now taken these numbers off the table. McKay expresses concern, elaborating, “Q1 guidance assumes top-line growth of only 4 – 14% y-o-y despite a number of recent product launches. The Karma drone and the Karma Grip are in limited supply, and we question whether demand for the HERO5 Session has lived up to expectations.”
Particularly considering the Hero5 Black and the Hero5 Session have both seen dips in revenue, McKay underscores, “Although GoPro confirmed that it will launch the HERO6 at some point in 2017, it appears primed for a challenging start to the year.”
Looking beyond the quarter, the analyst predicts, “[…] we believe that GoPro faces a significant headwind from the declining digital imaging market.”
Ultimately, “We remain unwilling to recommend GoPro shares due to recent execution missteps, ongoing supply issues for certain key products, and questions over the long-term demand for its HERO5 cameras,” McKay concludes.
For 2017, the analyst has cut his 2017 revenue projection from $1.23 billion to $1.10 billion, while reducing growth expectation down 7% from flat year-over-year, modeling a 16% decline in camera unit sales.
TipRanks analytics indicate GPRO as a Sell. Out of 15 analysts polled by TipRanks in the last 3 months, 1 is bullish on GoPro stock, 7 remain sidelined, and 7 are bearish on the stock. With a loss potential of nearly 2%, the stock’s consensus target price stands at $8.69.