Can GoPro Sustain Strong Holiday Sales Into 2017 After Karma Recall?

Baird prefers to remain sidelined on GoPro Inc GPRO, as it believes the recent Karma recall raises concerns over the sustainability of strong holiday sales levels into 2017.

In September, GoPro released the highly anticipated Karma drone along with the HERO5 cameras. But, the product was recalled in November due to a power failure issue in a small number of devices.

“Our checks suggest solid holiday sales for the HERO5, though sustainability into 2017 remains a big question,” analyst William Power wrote in a note.

Power noted that the recall puts fourth quarter and 2017 guidance at risk.

Analyst Adjustments

As such, Power cut his fourth-quarter revenue estimate to $552.9 million from $601.0 million and now forecast full-year 2016 revenue of $1.20 billion.

The analyst also projects 2017 revenue and EPS below consensus to reflect growth concerns amidst aggressive cost reduction. Power sees 2017 revenue and EPS of $1.40 billion and ($0.52) compared to FactSet consensus estimates of $1.43 billion and ($0.30).

“We would note that the company remains committed to reaching non-GAAP profitability in 2017, which could ultimately require additional costs cuts without revenue above our forecast,” Power added.

GoPro is set to report its fourth quarter numbers on February 2, after the market close.

At last check, shares of GoPro rose 1.29 percent to $9.39. Power has a Neutral rating on the shares, with a price target of $10.