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Will Revenue Growth Support GoPro's (GPRO) Q4 Earnings?

Zacks Equity Research

GoPro, Inc. GPRO is scheduled to report fourth-quarter 2018 financial results after the closing bell on Feb 6. In the last reported quarter, the company delivered a positive earnings surprise of 42.9%.

The action video camera maker is likely to report higher revenues in the to-be-reported quarter on the back of better-than-expected demand for its cameras — particularly, HERO7 Black. It is also likely to benefit from its continuous efforts on cost management. Whether this can result into an earnings beat remains to be seen.

Let’s find out how things are shaping up prior to the announcement.

Factors at Play

During the fourth quarter, GoPro announced the global availability of its HERO7 line of cameras. Notably, HERO7 Black — the company’s flagship camera — witnessed record levels of social engagement at launch and achieved the highest post-launch sell-through of any new camera in the history of the company.

Furthermore, the company announced that its best-selling $399 HERO7 Black has garnered a number of industry awards, highlighting the product’s state-of-the-art features. Its present cash cow received innovation awards from CES, CHIP, PCMag and Popular Science, among many others. HERO7 Black also received Editor’s Choice Awards from publications around the world including Mashable, Wired, Digital Photo, Kaden Hihyo and Xataka, and Fusion. Such international momentum and overwhelming positive reviews have helped to augment the company’s traction in camera market, translating into top-line growth.

During the quarter, GoPro announced its plan to move the production of most of its U.S.-bound cameras out of China by the summer of 2019 to counter the potential impact of any new tariffs in the wake of the ongoing Sino-American trade war. However, cameras bound for other countries will continue to be produced in China. Such a diversified approach should help the company to expand its business, irrespective of tariff implications. Although GoPro’s manufacturing partner provides facilities, the company owns its production equipment and therefore expects to make this move at a relatively low cost. With intensifying competition, GoPro is trying to drive demand for its cameras. It also aims to maintain its competitively priced product line up in order to increase market share globally.

For the fourth quarter, the Zacks Consensus Estimate for total revenues stands at $376 million. The company reported $335 million in the year-earlier quarter. Adjusted earnings per share are pegged at 26 cents. The company reported a loss of 30 cents per share a year ago.

What Our Model Says

Our proven model shows that GoPro is likely to beat earnings this quarter as it possesses both the two key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is exactly the case here as you will see below:

Earnings ESP: GoPro’s Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +5.47% as the former is pegged at 27 cents and the latter at 26 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

GoPro, Inc. Price and EPS Surprise

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

Zacks Rank: GoPro currently has a Zacks Rank #3. This increases the predictive power of ESP and makes us reasonably confident of an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Other Stocks to Consider

Here are some other 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:

Constellation Pharmaceuticals, Inc. CNST has an Earnings ESP of +9.72% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ameren Corporation AEE has an Earnings ESP of +1.68% and a Zacks Rank #1.  

ALLETE, Inc. ALE has an Earnings ESP of +5.26% and a Zacks Rank #2.

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