Shares of GoPro, Inc. (GPRO) surged a strong 13% yesterday after JMP Group Inc. (JMP) initiated coverage on the stock with an outperform rating and a target price of $60 (almost 150% premium to its IPO offer price of $24).
GoPro is a portable video camera maker offering cameras that can be attached to moving objects or even people. These cameras are specially used by sportsmen or sky divers to capture intricate details of a sporting episode.
Reasons Behind Positive Coverage
Analysts at investment banking and asset management services firm JMP believe that GoPro has huge market potential in an industry which is valued at approximately $70 billion. Furthermore, they expect strong revenues at its Media division as according to its latest filing, GoPro’s videos have fetched 50 million hours of viewership in 2013. This can be monetized to generate revenues to compensate for any deterioration in camera sales as a result of growing competition or otherwise.
The company has already created a GoPro channel for Microsoft's (MSFT) Xbox and Youtube. If the strategy takes off, GoPro would be in a good position to garner advertising revenues.
Further, the analysts believe that GoPro enjoys a first mover’s advantage in the high definition portable cameras market and its extensive portfolio of cameras will help it counter intensifying competition from new entrants.
There are some risks, however, given stiff competition in the wearable cameras segment from large firms like Apple (APPL) and Google (GOOG). The initial promos of Google Glass promise enhanced portability of video cameras and low prices once full-fledged retail marketing starts.
The day before JMP initiated its coverage, shares of GoPro fell 5% as Barron's provided an uncertain outlook on GoPro’s long-term growth. Analysts at Barron's believe that smart phones offer multiple features and are also very convenient. Thus, the analysts apprehend that it won’t be long before Smartphone manufacturers integrate this feature into mobile gadgets.
Traditional camera makers like Canon, Nikon and Polaroid that have the resources and brand power to expand into the segment could also increase competition for GoPro.
Seperately, a venture capital firm provided a sell rating on GoPro with a target price of $28.50 last Thursday, which sent the shares down 7.3% on the following day. The negative outlook was based on GoPro’s competitive concerns.
GoPro shares have had a bumpy ride since its IPO on Jun 26, 2014. Considering all the positive and negative reviews, we can conclude that investors need to be careful before trading in GoPro shares.
GoPro currently has a Zacks Rank #3 (Hold).
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