The shares of GoPro, which traded above $98 in October last year, recently tumbled 15.6% to $25.50 after setting a new low of $24.95, causing investors to flee despite the company announcing that 3rd-quarter earnings has increased more than double to 25 cents, while revenue has increased 43% to $400 million. Still, the company made a disappointing forecast.
With GoPro’s shares down 63% in the past year, investors need to cut their price targets, as Robert Stone of Cowen & Co. Robert Stone did, downgrading shares to Market Perform. He said, “Uncertainty about the sustainable growth rate is likely to hamper near-term stock performance, with new software, monetization of content, drones and virtual reality needed to grow the total addressable market in future years and re-expand the P/E.” While the brand is still valuable in action photography, this area has become increasingly crowded, which makes it unlikely for GoPro to resume its high early performance.
Though the company is expanding into new areas, such as drones, their core camera market is also now being targeted by other companies, including Apple, which is now integrating 4K video-capable cameras into the iPhone 6.
Even die-hard fans of GoPro are expected to see little reason to upgrade this year, as the brand decided not to refresh its flagship camera, Hero, for the holiday season—an inaction that will hurt sales and year-on-year comparison this quarter, considering that the brand released a new model in the 4th quarter of 2014.
Although bulls might argue that Hero does not need a refresh because of the brand’s new products, Jim Duffy of Stifel has warned that earnings per share may fall this year and in 2016, which will be driven by investments in future projects and marketing, particularly those in media and virtual reality. He argues, “Ramping expenses in the context of indications of slowing end market demand for core products makes GoPro a leap of faith for thrill-seekers. Despite brand value, we see too much risk that investments don’t generate return and remain comfortable on the sidelines.”