GoPro Positioning For Profitability Via Cost-Cutting, But Baird Remains Underperform

Baird maintained its rating on GoPro Inc GPRO despite company plans to cut 270 jobs, lower costs and expects to be profitable on an adjusted basis in 2017.

“However, given ongoing TAM questions, Karma uncertainty and a heavily back-end loaded guide, we are maintaining our Underperform rating,” analyst William Power wrote in a note.

Power noted the total addressable market remains a big question and risk, especially sales in Americas fell 4 percent in the recent fourth quarter.

“The same holds true for the drone market, which GoPro hopes to capitalize on with its Karma product,” Power highlighted.

In addition, the cash balance is declining. GoPro ended fourth quarter with $218 million of cash and equivalents, down from $474 million a year ago.

Pushing For Profitability

That said, the analyst said the company could reach its profitability target in 2017 with newly announced cost cuts.

The company plans to cut 270 positions, and now expects 2017 non-GAAP operating costs below $495 million, down from $600 million previously, making its adjusted EBITDA profitability guidance for the year more attainable.

Similarly, GoPro expects 2017 GAAP operating expenses to be below $585 million, down its previous below $688 million guidance.

Further, GoPro expects first quarter revenue to come in at the high-end of its previous $190 million - $210 million guidance.

“With non-GAAP operating expenses below $495 million and an expected 40% gross margin, GoPro's implied 2017 revenue appears to be approximately $1.3 billion+, which we view as more attainable than its previous guidance implied to reach profitability,” Power added.

Power now sees 2017 non-GAAP EPS estimate at ($0.07), up from ($0.49) previously.

At last check, shares of GoPro climbed 14.42 percent to $8.41. Power has a price target of $6.

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