Unprofitable GoPro Guidance For 2018 'Not Unexpected,' Says JPMorgan

GoPro Inc GPRO reported fourth-quarter results Thursday, including a miss on the top- and bottom- lines, and a warning a profit is unlikely in 2018.

The Analyst

JPMorgan's Paul Coster downgraded GoPro's stock rating from Overweight to Neutral with a price target lowered from $9 to $8.

The Thesis

GoPro's Q4 report fell "slightly" short of an already low bar and the 2018 guidance was "somewhat disappointing, though not unexpected," Coster said in the downgrade report. (See the analyst's track record here.) 

Encouragingly, the company's brand, channel and leadership position in the action camera market remain "compelling building blocks for a recovery someday," the analyst said — but GoPro needs an "ease-of-use breakthrough" to spur growth, he said. 

GoPro's stock is trading below a 6.0x multiple on an EV/sales basis, which represents an approximate 66-percent discount since the stock's initial public offering, Coster said. While GoPro is taking the necessary steps to right-size the business through an annual operating expenditure cut of $400 million, the ongoing pressures to gross margins, average selling prices and overall demand remain an overhang, he said. 

GoPro does have a path to "gradually drive profitable growth" by the bottom half of 2018, but there are few catalysts until then, Coster said. JPMorgan's revised $8 price target is based on a 0.9x multiple of the firm's calendar 2019 sales estimate.

Price Action

Shares of GoPro were trading lower by 0.67 percent at $5.46 at the time of publication Friday morning, ahead of the stock's 52-week low of $5.04.

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