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Dismal Demand, Price Cuts to Impede GoPro (GPRO) Q1 Earnings

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GoPro, Inc. (GPRO - Free Report) is slated to release first-quarter 2018 results on May 3, after the closing bell.

The company has had a volatile earnings history in the trailing four quarters, having beaten estimates thrice and missing in the other. Last quarter, GoPro reported an adjusted loss of 30 cents per share, far worse than the Zacks Consensus Estimate of a loss of 10 cents.

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

Factors to Consider

GoPro’s revenues have been highly volatile in the past three years, and have largely followed a downward trend, particularly in recent months. In the fourth-quarter 2017 results, the top line took a severe hit (down 38.1% year over year) due to sluggish demand for GoPro’s Hero gadgets, and discounting of the Karma drones and Hero cameras during the holiday season. The company is anticipating revenues to contract further in the first half of 2018, as it clears inventory from sales channels.

Coming to the bottom line, GoPro has actually lost money in seven of the last 10 quarters. The company reported an adjusted net loss of 30 cents per share in fourth-quarter 2017, against earnings of 29 cents in the year-ago quarter. The bottom line also missed the Zacks Consensus Estimate of a loss of 10 cents.

The company also recently decided to abandon the drone business and slash 20% of its workforce after witnessing a sub-standard holiday quarter. The failure of this unit will likely have a depressing impact on GoPro’s upcoming financials.

Further, GoPro slashed prices for the Hero 5 Black and Hero 5 Session cameras. It also cut the price of its latest camera, HERO 6 Black, to $399 from $499. The constrained demand and price cuts are likely to affect the top line and margins in the quarter to be reported.

GPRO is playing in a brutally competitive market, and has not been able to hold its own against camera makers, such as Nikon, Olympus, and Canon, as well as electronic players, including Samsung, Panasonic, and Sony. The company’s market share has been persistently threatened by lower-cost alternatives from Sony, Xiaomi, Garmin and HTC. The result has been consistent — sharp revenue and earnings declines in the last couple of years — and this quarter is expected to fare no better.

Not surprisingly, the company’s stock has had a dismal run on the bourse — having depreciated 47.2% over the past six months — much worse than the industry’s average decline of 2.8%.

Despite multiple challenges, GoPro still holds about 80% of the action-camera market in the United States. In the fourth quarter, its unit sales grew 28%, and soared 96% year over year in China and Japan, respectively. We are optimistic about the company’s subscription offerings, which might have added to revenues.

Of late, GoPro has been aggressively cutting costs through a series of layoffs in order to sustain profits. In 2017, the company conducted two rounds of layoffs, slashing 7% and 15% of its workforce in January and November, respectively. Earlier this year, the company announced another 20% retrenchment of its workforce. After the latest round, GoPro will end up with less than 1,000 employees. The company is targeting to limit operating expenses to less than $400 million in 2018 (compared with $476 million incurred in 2017). This is likely to aid GoPro’s attempts to revive its bottom line.

Also, in March, GoPro announced a global, equipment license and multi-year technology agreement with Jabil Inc. . The collaboration will make innovative, GoPro-enabled products and services available from some of the well-known hardware and software companies.The partnership will enable Jabil to leverage GoPro's advanced reference design and IP for producing camera lens and sensor modules, which will be incorporated into GoPro-approved third-party products and solutions.

GoPro, Inc. Price, Consensus and EPS Surprise


Earnings Whispers

Our proven model does not conclusively show that GoPro will likely 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 at least 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: GoPro has an Earnings ESP of -28.88%, as the Most Accurate estimate of 51 cents is pegged lower than the Zacks Consensus Estimate of 40 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company carries a Zacks Rank #3, which increases the predictive power of the ESP. However, the company’s negative ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with a 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:

Century Aluminum Company (CENX - Free Report) , with an Earnings ESP of +29.41% and a Zacks Rank of 3, is slated to report first-quarter 2018 results on May 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cardtronics PLC (CATM - Free Report) has an Earnings ESP of +10.00% and a Zacks Rank of 2. The company is likely to release first-quarter 2018 earnings on May 3.

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