Citi On GoPro: We Were Wrong

• GoPro Inc GPRO shares have plunged 70 percent year-to-date, and are trading close to the low-end of their 52-week range of $16.77 - $69.75.
• Citi’s Jeremy David downgraded the rating on the company from Buy to Neutral, while reducing the price target from $75 to $22.
• GoPro has slashed the HERO4 Session price to $200 and there is lack of visibility, David commented.

“We got it wrong,” analyst Jeremy David wrote, explaining that the Buy rating assigned in July 2015 was based on signs of GoPro expanding into consumer drones and flying cameras, as well as management’s strong track record since the IPO. He added, “Our timing could not have been worse, as news of the poor sell-through of the Session started trickling in August.”

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David expressed concern regarding the near-term demand environment for action cameras, and highlighted that further analysis of recent data points, the HERO4 Session price cut from $299 to $200, CEO Woodman’s comments at an investor conference on December 9 all point towards softening of demand for GoPro’s products.

“While we initially thought GoPro would recover from the poor HERO4 Session sell thru (initially attributed to poor marketing/ launch timing), we are becoming worried that the poor sell thru could be a reflection of diminishing consumer interest in new GoPro devices/ features that GoPro is introducing,” the Citi report noted.

The revenue and EPS estimates for Q415 have been reduced from $526M to $485M and from $0.41 to $0.22, respectively, which are significantly below Street expectations of $525M and $0.40.

The revenue estimates for 2016 and 2017 have been reduced from $2.30B to $2.08B and from $2.98B to $2.67B, respectively. The EPS estimates for 2016 and 2017 have been to $1.00 and $1.50, respectively, below Street expectations of $1.29 and $1.71.