In early October, after
(GPRO) latest cameras had been available for a few days, the company announced “the highest week-one retail unit sell-thru of any new camera in the company’s history.”
That seemed to suggest a long-awaited turnaround for the company’s business was finally on track. GoPro has recently said its latest camera launches would return the company to profitability.
But the announcement was competing with GoPro’s history of failed execution, along with new—but erroneous—social media reports that the new Hero7 Black camera had already been recalled. The stock fell 14% that week even as management refuted the recall claims, a bitter pill for investors who’d watched the stock claw back toward its 2018 highs.
This camera stock, to put it simply, is under a microscope.
“Investors are so concerned about GoPro’s [fourth quarter] that any question mark around our execution or sell-through or demand unfortunately, I think, spooks them, even when we deliver good news,” CEO Nick Woodman told Barron’s last week. “We’re seeing a very sensitive investor base.”
GoPro stock, a onetime post-IPO highflier, has fallen roughly 25% since the company reported third-quarter financial results after the market’s close on Nov. 1. That halted a rise from spring lows below $5 to 2018 highs above $7 this fall. The shares closed Friday at $5.51; GoPro peaked at $94 in 2014.
The company revealed its latest product lineup in September, just in time for the all-important holiday fourth quarter. Management has said it expects revenue of $360 million to $380 million for the quarter, which would represent modest growth from a year ago.
During a conference call with investors, Woodman said that the battle for consumer wallet share—generally, not for cameras specifically—is going to be fierce this holiday season, leading to a heavier discounts.
“We’ve received feedback from our retailers that this was going to be a very promotional holiday,” Woodman said on the call. (See
(BBY) Black Friday circular, which includes a Hero7 for $400, its usual price, but includes a $30 gift card and a free memory card, for an example.)
That contributed to worries about revenue and profit margins—though the company said it expects average selling prices to rise during the quarter thanks to a shift toward the pricier Hero7.
And GoPro still expects to turn a profit in the fourth quarter; Wall Street expects earnings of 27 cents per share. It could do the same in the first quarter of 2019 as customers buy more higher-end cameras, further driving up average sales prices, while the company works to control expenses.
“All of our products are selling in line with expectations,” Woodman told Barron’s.
And discounts, management has said, aren’t expected to stretch into the new year—something that has hurt the company in the past.
“We’re not seeing any signs that we would need to do that,” Woodman said on the conference call.
If the camera mix moves toward more upmarket cameras—including the $400 Hero7 Black, which includes new image-stabilization technology, and $600 Fusion—some investors could get back behind the stock.
“We remain on the sidelines here given the tough road back to consistent profitability,” wrote JP Morgan Chase analyst Paul Coster, who has a Neutral rating and a $7 price target on the stock, on Nov. 2. “Much depends on if the new flagship Hero 7 catalyzes demand.”
The biggest bull on Wall Street is now Andrew Uerkwitz at Oppenheimer, who has a $9 target on the stock. FactSet’s average price target is around $6.60.
“What I see is a management team that has learned from past mistakes: it’s being flexible, focused on keeping inventory/channel in check, and executing well toward plan,” Uerkwitz wrote. “Our thesis has been predicated on outperformance next year.”
Cost management has been one of Woodman’s watchwords since his dramatic restructuring of the company kicked off the year. Wedbush analyst Michael Pachter, writing Nov. 2, worried that if GoPro’s latest lineup doesn’t attract new customers as the company hopes, it may need to start spending more on marketing, endangering profits.
Pachter recently reiterated his own Neutral rating and $7 price target. When management wasn’t more upbeat about the fourth quarter, he wrote, “investors may have lost confidence.”
During the Thursday interview, Barron’s asked Woodman whether he was stressed by investors’ intense focus on the fourth quarter.
“I’m not stressed,” Woodman said. “What you’re hearing from me is more a frustrated acknowledgment that investors are sensitive to GoPro’s performance to a degree where I think we really just need to get through Q4 and prove to them not that we’re going to have a successful Q4—but that we had a successful Q4.”