Channel Check Alert: GoPro Holiday Sales Not Looking Good

• GoPro Inc GPRO shares are down 51 percent in the last three months, and are trading significantly lower than their 52-week high of $75.30.
• Morgan Stanley’s Katy L. Huberty said that initial checks had suggested that sales of the company’s action cameras appear soft, while demand for drone and quadcopter seems suspect.
• Huberty added that while Fitbit Inc FIT witnessed robust online activity, Garmin Ltd. GRMN struggled with brand awareness.

In a note published by Piper Jaffray on November 18, analyst Erinn Murphy had expressed concern over an inventory buildup, citing GoPro products popping up on a number of flash sales sites like Zulily, Groupon, and RueLaLa, with price discounting of around 16-34 percent on action cameras and bundled kits.

Analyst Katy Huberty said the GoPro’s progress on inventory appears to be tracking below the Q4 assumptions. She added, “Our checks saw little change in absolute inventory levels entering Thanksgiving weekend, in-line with our expectation that retailers will try to reduce weeks of inventory during the holiday season.”

Although there was some decline in inventory over the Thanksgiving weekend, Huberty expressed concern over the rate of inventory decline and associated sell-through lagging targets. Checks indicate that there is 4 weeks of inventory in the channel. Retailers are disappointed with the sell-through rates.

Morgan Stanley estimated a 17 percent y/y decline in Q4, while current consensus indicate y/y growth in sell-through. Management expects YoY sell-through to be boosted by increased sales and marketing spend. Huberty added, however, that this does not as yet seem to be having its desired effect.

“Given that flagship HERO4 cameras are over a year old, we think there is a possibility of further discounting to meet sell-through targets. If sell-through does not meet YoY growth objectives, we think there could be downside risk to our March 2016 quarter estimates,” the analyst wrote, while noting that the estimates already reflect 35 percent sequential and 5 percent y/y decline.

Sales of consumer drone/quadcopter were also disappointing, suggesting “the current market may be limited to a niche demographic of hobbyists and prosumers,” the report added.