GPRO Earnings Brief

GoPro, the action camera manufacturer, is set to report earnings after the close on April 28th. The consensus on Wall Street is for earnings per share of $0.18 on revenues of $340 million. Looking forward to guidance of Q2, the consensus is for earnings per share of $0.15 on revenues of $331 million, a 17% and 3% cut respectively, quarter over quarter.

Michael Pachter of Wedbush Securities, who maintains an outperform rating with a $70 price target had the following comments:

“Demand for GoPro products appeared brisk throughout Q1, with the sales ramp in China helping. We do not expect competition to have a material impact on GoPro sales near-term, as alternative products don’t match the value proposition of the entry-level HERO, nor the feature set of the high-end HERO4 products.”

Pachter concluded by noting the upcoming near term challenges.

“We do not expect GoPro shares to appreciate meaningfully until insider sales abate and the company is able to diversify its revenue stream beyond cameras and accessories, placating investor fears about revenue concentration.”

The Competition

Garmin Ltd, (NASDAQ: GRMN) the GPS giant, has developed two new HD cameras set for a summer release. Dubbed as the “VIRB,” these action cameras will offer full HD video recording and improved design, but most intriguing is the ability for connectivity with Garmin’s heart rate monitor and smart watch.

Speculation is swirling that the new VIRB cameras will utilize the Ambarella (NASDAQ: AMBA) chip set, the same component Gopro’s cameras currently use. The emergence of Garmin’s new action cameras represents the latest competition to GoPro. However, what threat in capturing market share they actually will pose to GoPro is yet to be seen. In any case, it will be interesting to keep watch on how this story plays out, especially with the spotlight on AMBA in the near term.

Activist Attention

Recently, rumors have been looming that billionaire activist investor Carl Icahn would be establishing a stake in the company. Unusually high call option volume, many more times than that of puts, is hinting toward a potentially massive short squeeze as over 50% of the float in GoPro is short.

The heavyweight activist investor is well known for his ability to urge a company to implement significant changes after acquiring a large stake.

The pros and cons of Icahn’s rumored stake could be discussed at length but investors must keep in mind it is simply just a rumor at this time. If in fact Icahn does initiate a position it will become public knowledge via sec filings and be readily available for all to view. Finally, if an Icahn stake is revealed, an already volatile stock will become that much more of a wild ride.

GoPro is trading down nearly 30% from the beginning of year on low end competitor fears, a large share lockup expiration, and a lofty valuation.