Amid Product Challenges, High Cash Burn Rate, Goldman Downgrades GoPro To Sell

Goldman Sachs’ Simona Jankowski believes GoPro Inc GPRO shares are likely to see 32 percent downside, as compared to the average upside of 5 percent expected for the Hardware & CommTech coverage.

The analyst downgraded the rating on the company from Neutral to Sell, while lowering the price target from $9.50 to $6.00.

Significant Challenges

“GoPro faces significant challenges following saturation of its core action cameras market, product rollout issues in the holiday season, and a disappointing entry into the drone market,” Jankowski mentioned.

Due to these issues, the company has seen a meaningful opex ramp over the past two years. In addition, with the restructuring charges, the analyst expects GoPro to generate negative free cash flow until fourth-quarter 2017, which could materially impact the company’s cash balance and potentially lead to it tapping into its credit facility.

With risk to the consensus expectations, Jankowski believes that the stock is overvalued at the current levels.

Related Link: Jim Cramer Advises His Viewers On GoPro And Cypress Semiconductor

Competition

In addition, the company faces a new competitor in YI Technology “whose products are competitive with GoPro’s but at a $100 (25–33 percent) lower price point.”

Jankowski also noted that the company’s recent restructuring efforts might reduce GoPro’s ability to differentiate through content, with the company having eliminated its entertainment group.

“In drones, GoPro’s new entry with the Karma lags competitor DJI in several key features and performance metrics, which makes it unlikely that it will gain significant share,” the analyst added.

Estimates Lowered

“We lower our estimates below consensus as we expect GoPro to continue to struggle fundamentally,” the analyst stated while pointing out that in its core action camera market, GoPro saw a disappointing holiday season, exiting the period with excess inventory.

The non-GAAP EPS estimates for 2017, 2018 and 2019 have been lowered to reflect lower revenue expectations.

At last check, shares of GoPro were down 4.52 percent at $8.44 in Monday's pre-market session.