GoPro Sales Forecast Lowered After Ambarella's Guidance Whiff, Piper Jaffray Warns

• Shares of GoPro Inc GPRO are down 71 percent year-to-date, and are trading significantly below their 52-week high of $74.50.
• Piper Jaffray’s Erinn E. Murphy maintained an Underweight rating on the company, with a price target of $15.
• Weak guidance by GoPro’ key supplier Ambarella Inc AMBA indicates further pressure on the former’s revenues, Murphy pointed out.

Analyst Erinn Murphy mentioned that weak 4Q guidance issued by Ambarella, a key supplier of video compression and image processing semiconductors for GoPro, depicts softness in the wearable sports camera market.

“We believe this is related to softness in GoPro currently. Our correlation analysis between GPRO revenue and AMBA revenue on a one quarter lag suggests downside to GoPro's Q4 revenue,” Murphy wrote.

Ambarella reported robust 3Q results, although it mentioned that the wearable sports category was weakening into Q4 due to substantially high inventories in Q3.

Murphy believes that Ambarella’s Q3 commentary indicates further pressure on GoPro’s revenues. He added, “GoPro revenue has a 0.86 correlation to Ambarella's revenue on a one quarter lag. As such, we see potential downside to our current GPRO Q4 revenue estimate.”

GoPro’s sales estimates for Q415 and FY16 have been reduced from $488million to $472 million and from $1,588 million to $1,573 million, respectively, based on the correlation analysis. The EPS estimates for GoPro for Q4 and FY16 have been reduced from $0.34 to $0.28 and from $1.03 to $0.97, respectively.