Analysts See Blurry Longterm Picture For GoPro Despite Profitable Quarter

GoPro Inc. GPRO issued a strong earnings report and bullish guidance on the near future, but analysts find the long-term picture for the action camera maker a bit blurry.

GoPro reported its first profit in five quarters Wednesday, beating Wall Street expectations by a nickel, with revenue also coming in above estimates. The company reported strong cost-cutting –- from a much smaller workforce -- and high demand in a bright holiday period, particularly for its new HERO7 Black camera. The company also got out of its failing drone business last year.

Morgan Stanley

Morgan Stanley’s Yuuji Anderson wrote in a note that to sustain its recovery, GoPro needs more success with cheaper cameras, beyond its centerpiece higher-priced flagship product.

But GoPro’s ultimate potential depends on continuing camera usability and quality improvements, including editing and sharing abilities, and it’s not clear GoPro is making enough of those improvements. Smartphone camera technology is “good enough” for many would-be action video takers, Anderson noted, limiting the overall potential market, especially for lower-end cameras, unless there’s significant improvement in the functionality of the camera and its capabilities.

“Historically, the pace of improvements in camera functionality have not been enough to consistently drive growth outside of the flagship (camera),” Anderson wrote. “Given evidence of declining demand outside of GoPro's core audience, we remain cautious on the opportunity.”

Anderson has an Underweight rating on GoPro with a target price of $4.

Longbow

Longbow Research analyst Nikolay Todorov credited GoPro management with stabilizing the brand and said it appears it has put the company back on a path to profitability. But, he said, much of this year’s expected growth will be driven by higher average sales prices, with only modest growth in actual unit sales, raising questions about the company’s total available market over time.

Todorov remains Neutral on GoPro.

Price Action

GoPro shares closed Thursday at $5.14.

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