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Can GoPro (GPRO) Spring a Surprise this Earnings Season?
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GoPro, Inc. (GPRO - Free Report) is slated to report second-quarter 2016 results after the closing bell on Jul 27.
In the preceding quarter, the company let down investors by posting a negative earnings surprise of around 14.1%, marking a hat-trick of negative surprises. The massive misses have resulted in an average negative surprise of 11.7% in the four trailing quarters.
Let’s see how things have been shaping up before this announcement.
Factors to Consider
Over the past few quarters, GoPro has been striving to revive sales of its much hyped HERO line of capture devices, largely resorting to tactics like price cuts and portfolio pruning. Through the implementation of such initiatives, the company generated more than three-fold increase in sell-through rates in Dec 2015 and represented about 48% of the units sold during the first quarter of 2016. We believe the company’s HERO4 Silver is one of the primary growth drivers for the second quarter.
Last month, analysts at JP Morgan announced that the company’s marketing initiatives are reaping the desired results as sales have been stabilizing over the past few months. The renewed traction of HERO camera sales in the APAC region, especially China, is expected to fuel sales in the second quarter. In addition, the company’s decision to emphasize on software solutions, to transform it from a camera maker to content maker, is bearing fruits.
During the first quarter of 2016, the company made significant improvement to its editing software, on the back of its recent acquisition of two of the most popular mobile editing apps, Replay and Splice, which are highly in demand. Increasing traction of GoPro’s software applications are expected to supplement growth. Furthermore, growing popularity of GoPro app downloads (downloaded 2.8 million times leading to nearly 27 million cumulative downloads) and GoPro studio installations are expected to be other growth churners for the beleaguered action camera maker in the soon-to-be-reported quarter.
There is no denying the fact that despite all its sincere efforts, GoPro has been in troubled waters since the second half of 2015 which has severely maligned the company’s financials. Precipitous sales decline of the company’s HERO4 session cameras owing to increased adoption of its HERO4 black and silver cameras are hurting the company’s overall revenues.
In addition, escalating charges in connection to the re-pricing of its HERO4 camera, excess inventory and obsolete tooling are expected to pose as major headwinds. During the first quarter of 2016, GoPro recorded a $21 million charge related to the re-pricing of its HERO4 camera and $57 million for excess inventory, surplus parts and outdated tooling. Such issues are expected to hurt margins in the second quarter as well. Also, escalating R&D expenses are adding to the company’s woes.
Additionally, economic slowdown in China, which is one of the major markets of the company, and waning sales of action sports cameras in the U.S., will likely hurt GoPro’s second-quarter financials. Also, currency fluctuations are expected to play spoilsport.
Our proven model does not conclusively show that GoPro will beat estimates this earnings season. 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. That is not the case here as you will see below.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 72 cents. This translates into an Earnings ESP of 0.00% for GoPro.
Zacks Rank: GoPro’s Zacks Rank #3, when combined with a 0.00% ESP, lowers the predictive power of ESP and makes surprise predictions difficult.
Note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies you may want to consider instead as our model shows they have the right combination of elements to post an earnings beat this quarter:
Spectra Energy Corp. (SE - Free Report) has an Earnings ESP of +40.00% and a Zacks Rank #1. The company is slated to release earnings on Aug 3.
Gilead Sciences Inc. (GILD - Free Report) has an Earnings ESP of +6.91% and a Zacks Rank #2. It will be reporting results on Jul 25.
American Campus Communities, Inc. has an Earnings ESP of +1.89% and a Zacks Rank #2. The company will report results on Jul 25.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
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Can GoPro (GPRO) Spring a Surprise this Earnings Season?
GoPro, Inc. (GPRO - Free Report) is slated to report second-quarter 2016 results after the closing bell on Jul 27.
In the preceding quarter, the company let down investors by posting a negative earnings surprise of around 14.1%, marking a hat-trick of negative surprises. The massive misses have resulted in an average negative surprise of 11.7% in the four trailing quarters.
Let’s see how things have been shaping up before this announcement.
Factors to Consider
Over the past few quarters, GoPro has been striving to revive sales of its much hyped HERO line of capture devices, largely resorting to tactics like price cuts and portfolio pruning. Through the implementation of such initiatives, the company generated more than three-fold increase in sell-through rates in Dec 2015 and represented about 48% of the units sold during the first quarter of 2016. We believe the company’s HERO4 Silver is one of the primary growth drivers for the second quarter.
Last month, analysts at JP Morgan announced that the company’s marketing initiatives are reaping the desired results as sales have been stabilizing over the past few months. The renewed traction of HERO camera sales in the APAC region, especially China, is expected to fuel sales in the second quarter. In addition, the company’s decision to emphasize on software solutions, to transform it from a camera maker to content maker, is bearing fruits.
During the first quarter of 2016, the company made significant improvement to its editing software, on the back of its recent acquisition of two of the most popular mobile editing apps, Replay and Splice, which are highly in demand. Increasing traction of GoPro’s software applications are expected to supplement growth. Furthermore, growing popularity of GoPro app downloads (downloaded 2.8 million times leading to nearly 27 million cumulative downloads) and GoPro studio installations are expected to be other growth churners for the beleaguered action camera maker in the soon-to-be-reported quarter.
There is no denying the fact that despite all its sincere efforts, GoPro has been in troubled waters since the second half of 2015 which has severely maligned the company’s financials. Precipitous sales decline of the company’s HERO4 session cameras owing to increased adoption of its HERO4 black and silver cameras are hurting the company’s overall revenues.
In addition, escalating charges in connection to the re-pricing of its HERO4 camera, excess inventory and obsolete tooling are expected to pose as major headwinds. During the first quarter of 2016, GoPro recorded a $21 million charge related to the re-pricing of its HERO4 camera and $57 million for excess inventory, surplus parts and outdated tooling. Such issues are expected to hurt margins in the second quarter as well. Also, escalating R&D expenses are adding to the company’s woes.
Additionally, economic slowdown in China, which is one of the major markets of the company, and waning sales of action sports cameras in the U.S., will likely hurt GoPro’s second-quarter financials. Also, currency fluctuations are expected to play spoilsport.
GOPRO INC-A Price and EPS Surprise
GOPRO INC-A Price and EPS Surprise | GOPRO INC-A Quote
Earnings Whispers
Our proven model does not conclusively show that GoPro will beat estimates this earnings season. 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. That is not the case here as you will see below.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 72 cents. This translates into an Earnings ESP of 0.00% for GoPro.
Zacks Rank: GoPro’s Zacks Rank #3, when combined with a 0.00% ESP, lowers the predictive power of ESP and makes surprise predictions difficult.
Note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies you may want to consider instead as our model shows they have the right combination of elements to post an earnings beat this quarter:
Spectra Energy Corp. (SE - Free Report) has an Earnings ESP of +40.00% and a Zacks Rank #1. The company is slated to release earnings on Aug 3.
Gilead Sciences Inc. (GILD - Free Report) has an Earnings ESP of +6.91% and a Zacks Rank #2. It will be reporting results on Jul 25.
American Campus Communities, Inc. has an Earnings ESP of +1.89% and a Zacks Rank #2. The company will report results on Jul 25.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>