GoPro Swings to Q3 Profit on Cost Reduction

Snowboarder with GoPro camera mounted to helmet - photo - November 2017Action camera manufacturer GoPro, Inc. (NASDAQ: GPRO) reported a swing to profit in the fiscal 2017 third-quarter, compared to a net loss in the year-ago period. The Q3 revenues also rose 37% on y-o-y basis. Still, the stock plunged to $7.50 levels. GoPro’s fourth-quarter guidance was below analysts’ estimates. That caused a decline in the stock price. Still, on the basis of the details provided underneath, we anticipate a short-term recovery in the share price.

The California-based company reported 3Q17 revenues of $329.805 million, up from $240.596 million in 3Q16. For the September quarter 2017, GoPro posted a GAAP net income of $14.661 million, or $0.10 per share, compared with a GAAP net loss of $104.07 million, or $0.74 per share, in the similar period of 2016.

The non-GAAP net income in the recent quarter was $21.149 million, or $0.15 per share, compared to a non-GAAP net loss of $84.279 million, or $0.60 per share, in the prior year period. The Zacks Consensus estimate had called for a non-GAAP earnings of $0.02 per share on revenues of $314.81 million.

GoPro credited its impressive performance to lower operating costs and higher average sales price. Strong demand for Hero 6 camera also assisted in returning to profit. However, the demand for “Hero 5 Black” camera was lower than expected. The operating expenses declined to a three year low of $122.5 million in the third-quarter. GoPro anticipates a decline in operating expenses by 30% y-o-y in 2017. More than half of GoPro’s revenue was generated outside the US. The company also saw a good start for its Karma drone. Due to rigorous cost cutting, the sales and marketing expenses fell 49.1% on y-o-y basis.

For the fourth-quarter, GoPro anticipates revenues of $470 million, plus or minus $10 million. Excluding charges, the company expects Q4 2017 earnings of between $0.37 and $0.47 per share. The Wall Street analysts expect earnings of $0.57 per share on revenues of $521.20 million. That resulted in a decline in the stock’s price. GoPro is planning several new product launches in 2018. In this regard, the company is interested in reducing the inventory of “Hero 5 Black” cameras, which is losing its popularity after the arrival of Hero 6. Thus, GoPro will be offering a deeper discount during the holiday season to clear the inventory at a faster pace. Ultimately, the discount will punch a hole in the overall revenues in the fourth-quarter. However, it will enable the company to focus on new launches and realise better price in 2018. Thus, it is not a worrisome case.

GoPro will be launching its $699 fusion 360-degree camera in November. The camera allows customers to create videos suited for 360-degree VR viewing. Thus, it would be an entry in a new product category.

To reduce operational costs further, GoPro has shifted its software development to Romania. Similarly, the customer support services have been moved to the Phillippines. The restructuring efforts are expected to bring down FY17 GAAP operating expenses below $585 million and non-GAAP operating expenses under $495 million.  Thus, a swing to profit, decline in operating expenses, and launch of new products is expected to attract value investors.

The price chart indicates a strong support for the stock at 7.98 levels. An oversold scenario is also indicated by the Williams’ Percentage Range indicator. Thus, we can expect a bullish trend reversal in the stock price.

GoPro - Technical Analysis - 20th November 2017

A call option is suitable to benefit from the uptrend. We may establish a trade if an option contract active until November 28 is available. Further, a strike price of about $8 is preferred for the trade.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.