GoPro Will GoLow(er), Warns Piper Jaffray

• GoPro Inc GPRO shares have declined 51.6 percent over the past three months, hitting a low of $27.60 on October 8.
• Piper Jaffray’s Erinn E. Murphy has downgraded the rating on the company from Neutral to Underweight, with a price target of $20.
• Murphy believes that there could be further downside to the stock, given that consumer demand seems to be moderating, while the 3Q results and 4Q guidance were disappointing.

Analyst Erinn Murphy also believes that “higher inventory & severe reversal of sales trends will keep an incremental buyer away from shares.”

The company reported its 3Q sales below the low end of the guidance range, while the unit devices sold during the quarter was below the estimate. Murphy mentioned that this suggested that pricing declined by about 3 percent.

Direct sales grew 2 percent, while wholesale growth came in at 126 percent year on year. The highest year on year growth was in the EMEA region, followed closely by the Asia-Pacific.

The 4Q guidance of $500-550 million was significantly below the estimate and the consensus. The 4Q EPS guidance also missed the consensus forecast. Management expects the Americas to deliver the strongest growth, especially in the direct channel, while Session trends are likely to rebound.

“With no new products earmarked for Q4, and given the lapping of strong in-demand new product last year, we find this scenario could prove challenging,’ Murphy said.

“Red flags included the company's anemic direct sales growth and higher inventory,” the Piper Jaffray report added.

The 4Q and FY16 EPS estimates have been lowered from $0.81 to $0.34 and from $1.64 to $1.35, respectively.