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Dismal Holiday Quarter to Impede GoPro (GPRO) Q4 Earnings

Zacks Equity Research

GoPro, Inc. GPRO is slated to release fourth-quarter 2017 results, after the closing bell on Feb 1.

The company has had a decent earnings history, having beaten estimates each time over the trailing four quarters. Last quarter, GoPro reported adjusted earnings of 15 cents per share, far ahead of the Zacks Consensus Estimate which was at breakeven level.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Earlier this month, GoPro released a profit warning ahead of fourth-quarter 2017 earnings results. The company lowered its projected revenues for the critical holiday season to about $340 million, marking it as its worst holiday quarter since the company went public. This marks a significant slump from an already disappointing previous sales projection of $470 million.

Also, it represents a 37% year-over-year sales plunge in the key holiday quarter, and is behind the current Zacks Consensus Estimate of $384 million. The company stated that its revenues took a hit of about $80 million due to discounting for its Karma drones, as well as the Hero line of cameras, during the holiday quarter.

The company also decided to abandon its drone business and slash 20% of workforce after a witnessing sub-standard holiday quarter. Karma has been a roller-coaster ride for the company, punctuated mostly by lows rather than highs. Karma was facing mounting margin challenges in a tremendously competitive aerial market, even as a hostile regulatory environment in Europe and the United States severely limited its total addressable market. The failure of this unit will likely have a deep depressing impact on GoPro’s upcoming financials.

Further, the company stated that it saw soft demand for the flagship HERO 5 cameras at the beginning of the holiday quarter. This would also hamper the top line for the quarter under review. Additionally, the company was forced to offer the cameras at discounted prices to shore up sales, which would also put pressure on margins, consequently.

With this major fourth-quarter revenue shortfall, the company’s full-year growth is in serious jeopardy. In addition, GAAP losses might result in additional cash burn, further weakening the company's balance sheet.

Not surprisingly, the company’s stock has had a dismal run on the bourse — having depreciated 31.4% over the past one year — in stark contrast to the industry’s average position return of 20.2%.

 

GPRO is playing in a brutally competitive market, and has not been able to hold its own against camera makers such as Nikon, Olympus, and Canon, as well as electronic players, including Samsung, Panasonic, and Sony. Its market share has been continuously threatened by lower-cost alternatives from Sony, Xiaomi, Garmin and HTC. The result has been consistent — sharp revenue and earnings declines in the last couple of years — and this quarter is expected to fare no better.

In light of the recent dreadful developments at the company, the analysts’ community has become increasingly bearish on the stock, with the company’s estimates plunging headlong over the past month. The Zacks Consensus Estimate for 2017 has nosedived from earnings of 4 cents to a loss of 50 cents over the past month, highlighting acutely negative expectations from the company.

GoPro, Inc. Price, Consensus and EPS Surprise

GoPro, Inc. Price, Consensus and EPS Surprise | GoPro, Inc. Quote

Earnings Whispers

Our proven model does not conclusively show that GoPro will likely beat earnings estimates in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Earnings ESP for the company is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 10 cents.  You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company carries a Zacks Rank #4 (Sell). Notably, we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Hess Corporation HES, with an Earnings ESP of +2.66% and a Zacks Rank #3, is expected to report quarterly figures around Feb 5. You can see the complete list of today’s Zacks #1 Rank stocks here.

NGL ENERGY PARTNERS LP NGL, with an Earnings ESP of +78.95% and a Zacks Rank of 3, is slated to report results around Feb 6.

General Motors Company GM has an Earnings ESP of +2.13% and a Zacks Rank #3. The company is likely to release earnings around Feb 6.

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