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GoPro (GPRO) to Report Q1 Earnings: A Beat in the Cards?

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GoPro, Inc. (GPRO - Free Report) is slated to report first-quarter 2017 results, after the closing bell on Apr 27.

The company has had a choppy earnings history, having beaten estimates twice for as many misses in the trailing four quarters, for a modest average positive surprise of 0.2%. Last quarter, GoPro surpassed estimates by 33.3%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

A lot of things have gone wrong in recent times for GoPro, including multiple missed opportunities, manufacture issues and several goof-ups. The company’s Hero 5 Black cameras and Karma drones faced production issues and delayed shipments, which restrained the company's ability to meet product demand. The Karma recall also hit the top line in the last reported quarter.

However, the company has since resumed Karma sales and plans to ramp production further. We believe that GoPro is well poised to capitalize on the fast-growing consumer drone market. Karma’s success is an integral part of GoPro’s return to growth, along with the Hero5 cameras.

Recently, GoPro gave disappointing revenue projections for first-quarter 2017 at the upper end of the $190–$210 million range. The company expects gross margin in the low 30% range.

Unsurprisingly, GoPro’s stock has had a dismal run on the bourse – having declined 37% over the past one year – in stark contrast to the Zacks categorized Audio/Video Home Products industry’s average position return of 26.7%.

However big the issues it faces, GoPro still boasts an enviable retail presence. Extremely few consumer technology companies have the kind of retail presence that GoPro has and this might work in favor of the company.

GoPro declared plans to limit its adjusted operating expenses in 2017 to $600 million, in an attempt to try to return to full-year profitability next year. This is comparable to a 2016 figure of about $709 million. The company recently reiterated its target of full-year non-GAAP profitability and announced that it expects positive EBITDA for full-year 2017.

GoPro’s optimism stems from its company-wide restructuring efforts, which include a combination of programs to cut costs. These comprise reduction of total workforce by 15%, shutting down the entertainment division and reduction of office space. GoPro estimates elimination of 270 posts, going forward. Through these efforts, the company plans to reduce operating expenses by about $650 million.

Further, the HERO5 Black is arguably one of the best action cameras, currently, in the market and received rave reviews, and this should reflect well on the company’s quarterly results.

In addition, analysts have become increasingly bullish on the stock lately, with the company’s estimates moving north over the past month. The Zacks Consensus Estimate for 2017 narrowed from a loss of $1.09 to a loss of 47 cents over the past couple of months, thanks to five upward revisions compared with none downward.

Earnings Whispers

Our proven model does not conclusively show that GoPro will beat earnings estimates in this quarter. This is because 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. But that is not the case here as you will see below.

Zacks ESP: Earnings ESP for the company is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.07. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: GoPro has a Zacks Rank #2, but the company’s ESP of 0.00% reduces the chances of a positive earnings surprise.

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

Stocks That Warrant a Look

Here are some 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:

The Chemours Company (CC - Free Report) has an Earnings ESP of +4.08% and a Zacks Rank #1. The company is expected to release earnings around May 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chesapeake Energy Corp. (CHK - Free Report) has an Earnings ESP of +5.00% and a Zacks Rank #3. The company is expected to release earnings around May 4.

CAN Financial Corporation (CNA - Free Report) has an Earnings ESP of +10.13% and a Zacks Rank #3. The company is expected to release earnings around May 1.

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