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GoPro (GPRO) Down 26.1% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for GoPro (GPRO - Free Report) . Shares have lost about 26.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is GoPro due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

GoPro Q2 Loss Wider Than Expected, Revenues Down Y/Y

GoPro reported lackluster second-quarter 2020 results, with the bottom line and top line deteriorating on a year-over-year basis. However, higher customer demand and direct-to-consumer operating model alleviated quarterly performance to some extent amid the COVID-19 crisis.

Net Loss

On a GAAP basis, net loss in the June quarter came in at $51 million or a loss of 34 cents per share compared with a loss of $11.3 million or a loss of 8 cents per share in the year-ago quarter. The year-over-year deterioration was primarily caused by top-line contraction.

Quarterly non-GAAP net loss came in at $29.7 million or a loss of 20 cents per share against net income of $4.2 million or 3 cents per share in the year-ago quarter. The bottom line was wider than the Zacks Consensus Estimate of loss of 18 cents.

Revenues

GoPro generated revenues of $134.2 million, down 54.1% from $292.4 million in the year-ago quarter. The year-over-year decline in revenues was mainly caused by adversities stemming from the COVID-19 induced pandemic. Nevertheless, the company witnessed an upward sell-through trend of nearly 750,000 GoPro camera units amid this crucial hour. The top line surpassed the consensus estimate of $109 million.

Markedly, GoPro’s Plus subscription service ended the reported quarter with 372,000 paid subscribers, up 57% from the prior-year quarter’s figure. Further, the company also launched diversified products such as Lifestyle Gear and Zeus Mini in second-quarter 2020.

On the basis of geographies, revenues from Americas came in at $82.6 million (61.6% of total revenues), down 42% from $142.3 million in the year-ago quarter. Revenues from EMEA were $34.9 million (26%), down 57.9% from $82.9 million and APAC generated $16.7 million (12.4%), down 75.1% from $67.2 million.

On the basis of channels, revenues from Gopro.com were $59.5 million (44.3% of total revenues), up 125.4% from $26.4 million. Revenues from Retail channel came in at $74.7 million (55.7%), down 71.9% from $266 million year over year.

GoPro shipped 448,000 camera units during the reported quarter, down 58.6% year over year. The company had $142.2 million in inventory compared with $129.2 million in the year-ago quarter. Non-GAAP gross margin was 31.6% compared with 35.8% in the prior-year quarter. Impressively, cameras with prices above $300 contributed 95% to revenues in the reported quarter, reflecting higher demand for GoPro’s premium products.

Cash Flow & Liquidity

During the first six months of 2020, GoPro utilized $112 million of net cash for operating activities compared with $66 million of cash utilization in the year-ago quarter. As of Jun 30, the company had $79.7 million in cash and equivalents with $154.1 million of long-term debt.

Q3 Guidance

GoPro provided the guidance for third-quarter 2020. Revenues are estimated in the range of $220-$250 million, while adjusted gross margins are expected to be 35% +/- 50 basis points. Sell-through of GoPro camera units are expected to be 900,000. Meanwhile, adjusted earnings are anticipated in the band of 1-7 cents per share.

Moving Forward

Although the action video camera maker’s global distribution network has been severely impaired by the COVID-19 pandemic, the company is confident that any kind of operational changes will not impact its 2020 product roadmap, which includes new hardware, software and subscription products. Notably, GoPro believes that a more direct-to-consumer-centric approach with a lower operating expense model is better aligned with the present business climate as well as accretive to the average selling price of products and gross margin. This, in turn, will enable the company to position itself well when demand begins to normalize amid this hour of crisis.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 153.85% due to these changes.

VGM Scores

Currently, GoPro has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise GoPro has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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