GoPro (GPRO): Takeout or No Takeout? That’s the Market’s Question; Analyst Shares Split Thoughts

Longbow Research's Joe Wittine sees 60% to 40% odds in favor of GoPro accepting a M&A deal by the end of the year.


When the market caught word GoPro Inc (NASDAQ:GPRO) could soon be involved in an M&A deal, where Chinese electronics maker Xiaomi Corp buys out the action camera giant, shares initially saw a 7% upturn on bullish buzz. CEO Nick Woodman has indicated he would be willing to consider an agreement to the extent that even investment bank JPMorgan was brought on for GoPro to gain insights into what a prospective sale would entail.

In GoPro’s heyday, the company’s valuation towered above $10 billion. Though present-day, the market cap has stumbled to circle $761 million, The Information bets GoPro could ask for $1 billion should it be acquired. After all, keep in mind what Hewlett Packard was willing to shell out for fellow challenged electronics maker Palm 8 years ago. The Information also says Xiaomi is wary about paying too much, even as the tech company contemplates the acquisition.

Longbow Research analyst Joe Wittine weighs in on the M&A buzz here, giving majority odds, 60 to 40 that the giant gets acquired sometime in 2018. While contemplating the takeout rumors, the analyst plays it safe on the giant’s prospects, reiterating a Neutral rating on GPRO stock without listing a price target. (To watch Wittine’s track record, click here)

Sizing up reasons that favor a takeout first, Wittine makes a five-point case for GoPro. The analyst recognizes a plan to sustain price points between $200 to $400 and up for cameras tagged with the GoPro brand, where Xiaomi would sell its YI products in set GoPro displays- a strategic way to leverage GoPro’s brand in China. Wittine notes: “(1) Xiaomi’s organic push to enter various U.S. consumer tech markets has thus far not been successful. […] (2) Tough secular will coerce GPRO to sell, particularly after wrapping up drones and righting camera pricing. (3) Action cams have already been iterated to the nth degree, and are near-perfect. (4) Bankers are hired. (5) While the population of strategic buyers is limited, it only takes one.”

However, the analyst likewise sees reason the takeout may not happen: “(1) A Xiaomi tie-in could theoretically cheapen GoPro’s brand in the West. The brand remains valuable among the installed base. (2) Secular is tough and significant cost cuts have been made, seemingly preventing a financial buyer. (3) Based on our discussions with The Information’s reporter the week prior to last Thursday’s article, there wasn’t a sense of urgency. Second, the reporter attempted to push the bearish ‘zero’ angle. We could be reading too deeply, but this doesn’t reconcile with a reporter taking a hot takeout lead to press.” Time will tell if Xiaomi springs to buy GoPro by the close of the year- or not.

TipRanks shows that Wittine is not the only one hedging his bets on this tech stock. Out of 5 analysts polled in the last 3 months, a majority of 4 remain on the sidelines when it comes to GPRO’s market opportunity with a sole bear sounding the alarm. Yet, optimism is clearly evident despite these cautious expectations, considering the 12-month average price target of $6.13 reflects 19% in return potential for GPRO stock.