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Is GoPro’s share price back in focus?

It’s been a rollercoaster 2019 for action camera manufacturer GoPro [GPRO]. On 10 October, its share price reached an all-time low, closing at $3.38 – a far cry from the peak of $93.85 it received the same month five years previously.

 

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At the start of October, GoPro announced late-stage production delays for the new Hero8 Black. This forced sales from the third to the fourth quarter, leading the company to lower 2019 guidance for both revenue and adjusted earnings per share.

The share price has been creeping up since, however, and last week it jumped up further still to $4.71 at close on 8 November.

 

 

In its third-quarter earnings announcement, GoPro somewhat confounded expectations, stating that Q3 results “are above the guidance provided on 2 October.” Revenues for Q3 came in at $131m, which while still down 54% year-over-year managed to beat the Zacks Consensus Estimate by 4.68%. It also posted a quarterly loss of $0.42 per share, coming out more positive than the $0.48 loss per share predicted by Zacks.

$131million

GoPro's Q3 revenue

 

A hero’s welcome

In its Q3 announcement, GoPro also reiterated its annual revenue outlook of 6% to 9% growth as well as increasing its profit outlook for the fourth quarter and 2019. Subscriber numbers for the GoPro Plus service were up 66% year-on-year, surpassing 305,000 active paying users as of 4 November. GoPro also noted it holds a 93% dollar share of the action camera category in the US.

66%

Increase of GoPro Plus service subscribers year-on-year - surpassing 305,000

Founder and chief executive Nicholas Woodman said the GoPro Hero8 Black and Max, launched in October, were “generating the highest positive social sentiment metrics of any new GoPro and are setting record unit sales for new cameras”.

In the first month of unit sales, the Hero8 Black beat figures for the previous version from 2018 (the Hero7 Black) by 40%, while aggregated sales on GoPro.com were up 50% year-over-year in October.

Fourth-quarter revenues are expected to be between $550m and $585m, and Woodman hopes innovations can “wow” traditional customers and new ones such as vloggers. It also anticipates it will grow both its top line and EPS in 2020 and thinks its new products will help the company “take more share of the greater $13bn digital imaging market”.

Furthermore, in the wake of Google owner Alphabet’s [GOOG] purchase of Fitbit [FIT], rumours began circulating that that tech giants Xiaomi and Apple had been looking at GoPro last year, according to Investing.com. Facebook has also been touted as a potential suitor to GoPro, to enable it to boost its hardware offerings.

With market cap of around $726m, GoPro is certainly affordable to the big players, while Woodman has previously suggested he is open to doing a deal.

 

Market cap$714.245m
EPS (TTM)-0.5490
Operating Margin (TTM)-6.02%
Quarterly Revenue Growth (YoY)-54.10%

GoPro share price vitals, Yahoo Finance, 11 November 2019

 

Gaining momentum

GoPro has a mean consensus rating of hold and an average target price of $4.92, according to MarketScreener. Any further takeover talk should bolster the product’s share price, as well as the addition of further hot new products.

However, GoPro is still aware of the challenges it faces. The Hero8 is part of its attempt to create some more clear blue water between its products and smartphone capabilities.

Consumers, as noted by the sales clamour, are responding positively. But will this new appetite continue in the long-term?

It is likely that the share price will keep climbing as sales rise, but to gather any sustained momentum GoPro needs to dial up innovation and appeal to a much wider customer base. More licensing and IP deals with third parties such as Jabil, which is using the GoPro technology in police body cameras, would help here.

Vince Martin describes GoPro as a regular “next year” stock in Investor Place. The stock, he says, is “reasonably cheap”, and with revenue and profits looking promising, it could reap the benefits of any potential takeover.

“But the long-running problem with GPRO stock is that there’s usually that bull case on paper but in practice it disappoints. Its price is still 95% below that 2014 high,” he explains.

“But the long-running problem with GPRO stock is that there’s usually that bull case on paper but in practice it disappoints. Its price is still 95% below that 2014 high” - Investor Place's Vince Martin

 

He expects the stock will bounce if the company can “inspire confidence” that it’s actually going in the right direction.

“Anything less, however, and GPRO’s story might finally break for good,” he adds.

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