Morgan Stanley: GoPro Setting A High Bar For Q4

GoPro Inc GPRO reported third-quarter results Thursday that were in line with expectations, but management's guidance represents a high bar, according to Morgan Stanley.

The Analyst

Erik Woodring maintained an Underweight rating on GoPro with a $4.50 price target.

The Thesis

GoPro's third-quarter report was mostly in-line with management's pre-announcement, but its updated full-year guidance implies a "high bar" is set for the fourth quarter, Woodring said in a Friday note. (See his track record here.)

The math behind the 2019 guidance implies that 46% of total revenue will come in the holiday season quarter, which is the highest fourth-quarter mix in company history, the analyst said. 

Early sales of the new HERO8 action camera appear to be strong, but the company faces two hurdles to reach its outlook, he said.

First, the holiday season is six days shorter year-over-year, and forecasting consumer demand is never an easy task.

GoPro also discussed internal 2020 targets, which are not the same as established guidance, Woodring said.

GoPro is internally targeting at least 25% year-over-year adjusted EBITDA growth and 40% non-GAAP earnings per share growth, which roughly translates to EBITDA of $113 million and EPS of 49 cents, the analyst said.

These figures are "far ahead" of current estimates, including the research firm's estimates of $94 million in EBITDA and EPS of 38 cents, according to Morgan Stanley. 

Monster Holiday Season Ahead? 

GoPro's new HERO8 Black is off to the best start in the company's history, suggest prior concerns of growing competition from smart phones are overblown, The Verge reported.

Each new camera GoPro releases has sold better than ever, and the company could be set up for a "monster holiday season," the publication said. 

GoPro could also see its second-best quarter ever in terms of revenue if total sales come in between management's forecast of $555 million to $590 million, The Verge said. 

Yet a milestone fourth quarter would come in the wake of Thursday's report, in which total revenue of $131 million was the lowest of any quarter since GoPro went public, the publication said.

Revenue may have been impacted by a slight delay in the HERO8 launch due to a manufacturing issues, and the third quarter did have the the lowest operating expenses in five years, at $99 million.

"In other words, a quarter with that little revenue a few years ago would have been devastating. Instead, the company's stock was up around 6% in after-hours trading," according to The Verge. 

Price Action

GoPro shares were up 10% at $4.89 at the time of publication. 

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Photo courtesy of GoPro.