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GoPro (GPRO) Up 25.7% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for GoPro (GPRO - Free Report) . Shares have added about 25.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is GoPro due for a pullback? 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 drivers.

GoPro Q3 Earnings Top Estimates, Revenues Surge Y/Y

GoPro reported impressive third-quarter 2020 results, with the bottom line and top line surpassing the respective Zacks Consensus Estimate. Solid sales of HERO8 and HERO9 Black cameras across various geographies and accretive subscriber base, coupled with a direct-to-consumer strategy, buoyed GoPro’s quarterly performance despite the pandemic.

Bottom Line

On a GAAP basis, net income in the September quarter came in at $3.3 million or 2 cents per share against net loss of $74.8 million or loss of 51 cents per share in the year-ago quarter. The year-over-year improvement was primarily driven by a more than two-fold rise in the top line.

Quarterly non-GAAP net income came in at $31 million or 20 cents per share against net loss of $61.3 million or loss of 42 cents per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 14 cents.

Revenues

GoPro generated revenues of $280.5 million, up a whopping 113.9% from $131.2 million in the year-ago quarter. The surge in revenues was mainly driven by robust sales across all geographies and channels coupled with an accretive subscriber base despite adversities stemming from the COVID-19 pandemic. Further, the company witnessed an upward sell-through trend of more than 950,000 GoPro camera units in the reported quarter. The top line surpassed the consensus estimate of $233 million.

Markedly, GoPro ended the reported quarter with 501,000 subscribers, up 65% from the prior-year quarter’s figure. It expects to surpass 700,000 subscribers by the year-end. The company launched HERO9 Black in third-quarter 2020, which was further bolstered by solid traction in GoPro subscription service.

Region wise, revenues from the Americas came in at $157.7 million (56.2% of total revenues), up 161.1% from $60.4 million in the year-ago quarter. Revenues from Europe, Middle East and Africa (EMEA) were $64.6 million (23%), up 30.8% from $49.4 million, and Asia and Pacific (APAC) generated $58.2 million (20.8%), up 172% from $21.4 million.

On the basis of channels, revenues from Gopro.com were $81.3 million (29% of total revenues), up 247.4% from $23.4 million. The year-over-year increase in GoPro.com was primarily driven by continued investments to enhance the e-commerce experience, which ultimately led the healthy momentum in website engagement and conversion. Solid demand for HERO8 Black and HERO9 Black cameras was also a contributing factor. Revenues from Retail channel came in at $199.2 million (71%), up 84.8% from $107.8 million year over year.

GoPro shipped 923,000 camera units during the reported quarter, up 92.7% year over year. The company had $132.8 million in inventory compared with $250 million in the year-ago quarter. The year-over-year inventory reductions were mainly driven by an upward sell-through trend across all geographies, particularly in EMEA and APAC. Non-GAAP gross margin was 36.2% compared with 23.4% in the prior-year quarter. Impressively, cameras with prices above $300 contributed 83% to revenues in the reported quarter, reflecting burgeoning demand for GoPro’s premium products.

Cash Flow & Liquidity

During the first nine months of 2020, GoPro utilized $12.5 million of net cash for operating activities compared with $112.7 million of cash utilization in the year-ago period. As of Sep 30, the company had $146.9 million in cash and cash equivalents with $156.8 million of long-term debt.

Q4 and Full-Year 2020 Guidance

GoPro provided the guidance for both fourth-quarter and full-year 2020. For fourth quarter, revenues are estimated to be $365 million +/- $10 million, while adjusted gross margins are expected to be 38% +/- 50 basis points. Sell-through of GoPro camera units is expected to be 1.3 million. Meanwhile, adjusted earnings are anticipated to be 37 cents +/- 5 cents per share. For full-year 2020, revenues are expected to be $900 million +/- $10 million, while adjusted gross margins are estimated to be 36%. Sell-through of GoPro camera units is expected to be 3.7 million. Adjusted earnings are anticipated to be 6 cents +/- 5 cents per share.

Moving Forward

Despite the uncertainties stemming from the pandemic, GoPro has delivered an impressive performance on the back of a resilient business model. Although the action video camera maker’s upcoming results might get affected by the COVID-19 pandemic, GoPro is confident that any kind of operational changes will not hurt its 2020 product roadmap, which includes new hardware, software and subscription products.

Notably, in the third quarter, GoPro’s direct-to-consumer and subscription-centric strategy not only expanded margins but also increased subscriber base with lowered channel inventories and efficient working capital management. It 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 is accretive to the average selling price of products and gross margin. This, in turn, will enable the company to tap potential opportunities, which bodes well for long-term growth.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -23.75% due to these changes.

VGM Scores

Currently, GoPro has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, GoPro has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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