GoPro Will Trade 'Sideways' Next Two Months, Citi Warns

• GoPro Inc GPRO shares have plunged 40 percent year-to-date and are trading near their 52-week low of $9.90.
• Citi’s Jeremy David maintained a Neutral rating for the company, with a price target of $12.
• GoPro is expected to guide to weak 1Q results and its shares are expected to trade sideways over the next two months, David stated.

GoPro preannounced its 4Q15 results with a very high level of channel inventory. “We estimate ~$200M worth of channel inventory remains to be worked through over the next 3 quarters until the HERO5 launch (assuming a Sept/ October launch timeframe),” analyst Jeremy David stated.

The analyst believes that Street estimates of 1Q revenues of $297 million, down 32 percent q/q and 18 percent y/y, is too optimistic. He wrote, “Specifically, we believe continued challenging sell-through and likely inventory destocking in the channel in Q1 make a $230-$250M range for Q1 revenue (down 45% q/q and 34% y/y at the mid-point) more plausible.”

GoPro’s capture device unit shipments over the next three quarters are likely to be hit by the necessary channel destocking before the launch of the HERO5, while the launch of HERO5 is likely to result in a reacceleration in demand.

The company needs to provide more details on its channel inventory, expected revenue contribution from its new products in 2016, overall market penetration and plans for GoPro Entertainment after the departure of Zander Lurie.

“We believe GPRO is likely to trade sideways in February/ March, potentially undershooting our $9 bear case post the likely poor Q1 guide. We expect to see modest upward pressure as we get closer to the Karma and HERO5 launches,” David commented.