GoPro Shares Tumble Following Morgan Stanley Downgrade To Underweight

• Shares of GoPro Inc GPRO have declined 69.71 percent year to date, trading almost at their 52 week low on December 9.
• Morgan Stanley’s James E. Faucette has downgraded the rating on the company from Equal-weight to Underweight, while lowering the price target from $23 to $12.
• The downgrade is based on expectations of stagnation in product growth, along with pressure on the stock valuation. Faucette also expects high inventory levels to continue into 2016.

Analyst James Faucette agreed with management that the weak response to the Session camera was due to various issues, including low consumer awareness, while stating that the bigger issue was that “key challenges of off-loading, storage, and editing content” had not been effectively addressed for a product intended to be “taken anywhere to record everything.”

The upgraded HERO 5 cameras are expected to lead in 2016, despite the lack of adequate improvements to make off-loading and editing easier. In addition, limited improvements associated with video editing usability is expected to limit the adoption of quadcopter/Karma.

“Almost all retailers we have spoken with are seeing YoY declines in sales, waning interest in the category and product availability mix shifting to lower price points,” Faucette stated, while adding that “channel inventory is unlikely to be declining fast enough to hit targeted levels by the end of the year to adequately reflect retailers' reduced commitment to the product segment.”

The Q4 revenue and EPS estimates have been lowered from $527 million and $0.2 to $449 million and $0.07, respectively. The FY16 revenue and EPS estimates have been lowered from $2 billion and $1.14 to $1.6 billion and $0.66, respectively.