Morgan Stanley: GoPro's Challenge Is Software Development

GoPro Inc GPRO sank 4 percent Monday after an analyst said the company will go nowhere unless it can beat giant competitors in the development of video-editing software.

The action camera maker changed hands recently at $43.62, down 3.2 percent. GoPro is off more than 38 percent since November.

Morgan Stanley's James Faucette initiated coverage on GoPro at Equal-Weight with a $57 price target.

"We think the market has appropriately valued GoPro for the time being," Faucette said.

But the analyst outlined alternate scenarios whereby in four years, GoPro could rocket to $150 a share -- or sink to $14.

Big strides in video editing software are likely within that time frame, in the analyst's view.

"If GoPro is the one who successfully brings that to market, then you have a lot of upside," Faucette said, targeting $150 a share.

But GoPro faces formidable competition in the task from the likes of Apple Inc. AAPL and Adobe Systems Inc. ADBE.

If those competitors beat GoPro to the punch, "that will commoditize the hardware business, and that would result in downside to around $14" for GoPro shares, Faucette said.

Faucette offered viewers a deliberately fatuous two-minute clip made with GoPro equipment depicting the preparation of his GoPro report.

The clip required two hours of "raw" video and consumed between eight and 10 hours of editing time.

"It's too much effort," Faucette said. "GoPro needs to become the leader in automating the video editing process.

"If they can be successful, the addressable market is much larger than people think."

Faucette cited growth in the video camera market of several years ago, which he said was driven by better tools for editing and sharing photos.

The video camera market, even though it's in decline, "is still substantially larger than the expectation for GoPro," Faucette said.