Why Is GoPro (GPRO) Down 5.6% Since Last Earnings Report?

It has been about a month since the last earnings report for GoPro (GPRO). Shares have lost about 5.6% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.

GoPro Q4 Earnings Miss Estimates, Revenues Up Y/Y

GoPro reported tepid fourth-quarter 2019 results, wherein both the top and bottom lines missed the Zacks Consensus Estimate.

Net Income

On a GAAP basis, net income for the December quarter was $95.8 million or 65 cents per share compared with $31.7 million or 22 cents per share in the year-ago quarter. The three-fold increase in GAAP earnings was primarily attributable to higher revenues and income tax benefit in the reported quarter. For full-year 2019, net loss was $14.7 million or loss of 10 cents per share compared with net loss of $109 million or loss of 78 cents per share in 2018.

Quarterly non-GAAP net income came in at $102.5 million or 70 cents per share compared with $42.4 million or 30 cents per share in the year-ago quarter. The bottom line missed the Zacks Consensus Estimate by 9 cents.

Non-GAAP net earnings in 2019 were $35.3 million or 24 cents per share against net loss of $31.9 million or loss of 23 cents per share a year ago. The drastic improvement was mainly driven by top-line growth.

Revenues

GoPro generated revenues of $528.3 million, up 40% from $377.4 million a year ago. The increase was primarily driven by robust portfolio line-up, app monetization strategy and high-volume sales of HERO8 Black and MAX with Plus subscription service strategy, which further drove its subscriber base. The top line, however, lagged the consensus estimate of $571 million. Full year-revenues jumped 4% to $1,194.7 million from $1,148.3 million.

Revenues from Americas came in at $212.2 million (40.2% of total revenues), up 34.6% from $157.7 million in the year-ago quarter. Revenues from EMEA were $156 million (29.5%), up 34% from $116.4 million and APAC generated $160.1 million (30.3%), up 55% from $103.3 million.

Revenues from Direct channel were $230.3 million (43.6% of total revenues), up 33.6% from $172.4 million. Revenues from Distribution channel came in at $298 million (56.4%), up 45.4% from $205 million year over year.

GoPro shipped 1.9 million camera units during the reported quarter, up 31.4% year over year. The company had $144.2 million in inventory compared with $116.5 million in the year-ago quarter. Non-GAAP gross margin came in at 38.6%, up 20 basis points (bps) from 38.4%. However, it was negatively impacted by tariffs related to production delays of HERO8 Black cameras as a result of shift in production facilities from China to Mexico. Impressively, cameras with prices above $300 represented 90% of revenues in the quarter and for the full year compared with the respective tallies of 74% and 62% a year ago.

Cash Flow & Liquidity

In 2019, GoPro utilized $24.4 million of net cash from operating activities compared with $42.4 million of cash utilization in 2018. As of Dec 31, 2019, the company had $150.3 million in cash and cash equivalents with $148.8 million of long-term debt compared with respective tallies of $152.1 million and $139 million a year ago.

Q1 and 2020 Guidance

GoPro has provided outlook for first-quarter and full-year 2020. For the quarter, management expects revenues of $140-$260 million with net loss of $40-$60 million.

For the full year, non-GAAP earnings are expected to be in the range of 40-50 cents per share and GAAP earnings of 1 cent to 11 cents per share. Cash flow is anticipated in the band of $80-$100 million with gross margin of 38-39%. EBITDA is likely to be in the range of $95-$110 million. Markedly, the company expects to improve its margins with effective cost-control measures.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -100% due to these changes.

VGM Scores

At this time, 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 B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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. It's no surprise GoPro has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.