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GoPro (GPRO) Down 12.4% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for GoPro (GPRO). Shares have lost about 12.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is GoPro due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

GoPro Q1 Loss Narrower Than Expected, Revenues Rise

GoPro reported better-than-expected first-quarter 2019 results, wherein both the top line and the bottom line beat the respective Zacks Consensus Estimate. The action video camera maker’s quarterly performance was mainly driven by strong demand for HERO7 cameras and diligent execution of operational plans. Lower operating expenses and inventory management also acted as tailwinds.

Net Income

On a GAAP basis, net loss for the reported quarter was $24.4 million or loss of 17 cents per share compared with net loss of $76.3 million or loss of 55 cents per share in the year-ago quarter. The year-over-year improvement was primarily due to top-line growth and lower operating expenses.

Non-GAAP net loss for the quarter was $10.2 million or loss of 7 cents per share compared with net loss of $47.4 million or loss of 34 cents per share in the year-ago quarter. The bottom line was narrower than the Zacks Consensus Estimate of a loss of 9 cents.

Revenues

GoPro generated quarterly revenues of $242.7 million, up 19.9% year over year with growth in all geographic regions. The top line surpassed the consensus estimate of $235 million.

The company shipped 842,000 camera units during the quarter, up 11% year over year. This was largely due to solid demand for the flagship HERO7 Black camera, which accounted for more than 90% of total camera revenues and more than 85% of camera unit shipped in the quarter. Non-GAAP gross margin improved to 34.2% from 24.3% in the year-ago quarter, up 990 basis points.

Revenues from the Asia Pacific region grew 24%, while revenues from the Americas and Europe improved 23% and 12%, respectively. First quarter sell-through in Asia Pacific increased 11% in aggregate on a dollar basis according to research firm GfK. In the United States, GoPro captured 89% unit share and 97% dollar share of the action camera category, up from 86% and 95%, respectively, in the year-ago quarter per data from research firm The NPD Group. HERO7 Black was reportedly the leading selling camera in the digital imaging category by unit volume in the United States. In Europe, GoPro held 86% in both unit and dollar share in the $199 and above price band, up from 85% and 84%, respectively, a year ago.

Cash Flow and Liquidity

GoPro utilized $65 million of cash in operating activities during the quarter compared with cash utilization of $97.1 million a year ago.

As of Mar 31, 2019, the company had $86.9 million of cash and cash equivalents with $141.3 million of long-term debt.

Guidance

GoPro expects revenues for 2019 in the range of 7-10%, up from the previously guided range of 5-8%. Non-GAAP earnings are expected to lie within 25-45 cents with margins in the vicinity of 36.5%. For second-quarter 2019, revenues are expected to be to be in the range of $285 million to $305 million with earnings of breakeven to 6 cents per share (non-GAAP).

Moving Forward

GoPro expects to translate the healthy momentum in its business along with controlled cost into growth and profitability in 2019 while limiting its operating expenses. The company is optimistic about its prospects, mainly on account of strong demand for its products in end markets. It plans to enhance its Plus subscription service through enhanced benefits and user awareness and aims to work more closely with its retail partners, both in North America and abroad. GoPro is also making investments in merchandising and retail advertising to drive a bigger brand presence while continuing to innovate. It intends to expand footprint in emerging markets like India and is focused on scaling its CRM efforts to augment customer base.

The company remains on track to ramp up its U.S.-bound camera production in the second quarter in Guadalajara, Mexico, as it is shifting its production base to insulate itself against possible tariffs for cost savings and efficiencies.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months. The consensus estimate has shifted 83.33% due to these changes.

VGM Scores

At this time, GoPro has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

GoPro has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.



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