GoPro, Inc. (GPRO)

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GoPro stock slides toward worst day on record amid concerns about holiday discounting
12:53 pm ET November 2, 2018 (MarketWatch)
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By Emily Bary

Company warns that Hero7 Silver and White promotions could weigh on revenue and margins

GoPro Inc. has warned investors to brace for a rocky holiday season yet again.

The maker of action cameras beat top- and bottom-line expectations with its third-quarter earnings report Thursday, thanks to momentum for the company's new Hero7 Black camera (http://www.marketwatch.com/story/gopro-stock-gains-after-company-announces-new-hero7-camera-line-2018-09-20). But GoPro (GPRO) also said that it expects to ramp up promotions during the December quarter, especially with its cheaper Hero7 Silver and White products, which will negatively affect revenue and margins.

GoPro projected revenue of $360 million to $380 million for the quarter, whereas analysts surveyed by FactSet had been expecting sales of $392 million, as of the end of October. The company had previously forecast $380 million to $400 million in revenue.

See more: GoPro shares slump after revenue and earnings beat (http://www.marketwatch.com/story/gopro-shares-slump-after-revenue-and-earnings-beat-2018-11-01)

Shares are off more than 20% in midday trading Friday and on pace for their worst single-day percentage drop in history.

"Management believes there's a positive mix shift towards the HERO7 Black, but without distributed strength across all tiers we think it will be difficult for GoPro to sustain growth and margin improvements into next year," Morgan Stanley analyst Yuuji Anderson wrote. "Inventory exiting the year will be a key indicator for GoPro's recovery, and we remain skeptical on the recovery trajectory given the historical pace of functional improvements to the camera ecosystem and consumer receptivity."

Anderson rates the stock at underweight with a $5 target price.

Read: Fitbit stock heads toward record gain of more than 20% after surprise profit (http://www.marketwatch.com/story/fitbit-stock-heads-toward-record-gain-of-more-than-20-after-surprise-profit-2018-11-01)

GoPro has historically blundered the holiday season, but Wedbush analyst Michael Pachter isn't overly concerned about the discounting activity expected this year. "The heavy planned promotional activity around the holiday is to capture a higher share of wallet, and we think it will result in better unit sales," he wrote.

Pachter has a neutral rating and $7 target on shares. He wrote that while he thinks the company is executing better, he worries that it won't be able to expand its installed base without a drastic increase in marketing spending.

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JPMorgan's Paul Coster wrote Friday that he was "incrementally more constructive on camera unit demand" after seeing the latest report, though he expects that margin concerns could hurt the stock in the near term.

Coster, who has a neutral rating and $7 target on shares, said that GoPro is "executing well, delivering on operating-expenditure cuts, and managing a lean channel ahead" ahead of the seasonally strong fourth quarter.

Oppenheimer's Andrew Uerkwitz also sees signs of maturity on the management front. "Put together, what I see is a management team that has learned from past mistakes: It's being flexible, focused on keeping inventory/channel in check, and executing well towards plan," he wrote.

Uerkwitz said that the company's cautious stance heading into the fourth quarter seems to reflect component shortages as well as a focus on inventory levels. He rates the stock at outperform with a $9 target.

GoPro shares have slipped 41% over the past 12 months, while the S&P 500 has gained 5.3%.

-Emily Bary; 415-439-6400; [e-mail]

(END) Dow Jones Newswires

November 02, 2018 12:53 ET (16:53 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.P.S. was waiting to see if it held 5.55 > Nope