GoPro Rated A Buy By Dougherty

Dougherty & Company LLC initiated GoPro Inc. GPRO a Buy along with a price target of $65 due to the company update.

The camcorder giants founder and CEO Nick Woodman announced on Wednesday the release of the all new GoPro quadcopter, which will be released in the first half of 2016.

In accordance to Charles Anderson of Dougherty, he believes that GoPro “will extend its brand to adjacent product categories.” Woodman believes that drones have been the most logical extension for quite some time for GoPro and says that “shooting video in a new perspective is in our DNA.”

Anderson stated that “we note that leading consumer quadcopter drone-maker DJI (of China) is expected to sell over $1B of product in 2015 (roughly double 2014 revenue). If we assume DJI will have 80% market share this year and that the market will grow 50% in 2016, the addressable market is about $1.9B in 2016. If we give GoPro 25% market share and assume 30% incremental margins, that would deliver $475MM of incremental revenue to our model and ~$0.70 of incremental EPS to our FY16 estimate of $2.02. At a 25x multiple, that would be worth $17.50 of upside to the stock.”

This such news is beneficial for Ambarella Inc. AMBA who supplies GoPro with image signal processor chips.

Charles concludes with a few risks that may be experienced by GoPro in the near future:

• The action-camera market share has greater downside than upside.

• Comps may be tough due to GoPro’s popularity in distribution gains.