GoPro Falls After Morgan Stanley Downgrade Cites Limited Strategic Value

Shares of GoPro (GPRO) are falling after a Morgan Stanley analyst downgraded the stock citing limited strategic value.

DOWNGRADE: On Tuesday, Morgan Stanley Yuuji Anderson downgraded GoPro to Underweight from Equal Weight, arguing that the market is giving too much credit to the company for its strategic value. Improving action camera demand hinges on software developments that can meaningfully improve usability, and without acceleration in that area, Yuuji thinks negative trends are more likely to continue into 2019, weighing on earnings and GoPro's potential strategic value, he told investors in a note titled "A Long Year Ahead." He added that, even with overall volumes improving due to the HERO6 price cut, the improvement is unlikely to offset the expected gross margin declines and he sees limited year-over-year improvements in 1H18. The analyst cuts his price target on GoPro to $5 from $9.50.

WHAT'S NOTABLE: On January 8, GoPro cut its fourth-quarter revenue outlook to $340M from $460M-$480M, which includes a negative impact of approximately $80M for price protection on HERO6 Black, HERO5 Black and HERO5 Session cameras, as well as the Karma drone. GoPro also announced the reduction of its global workforce from 1,254 employees as of September 30, 2017, to fewer than 1,000 employees worldwide, and that its founder and CEO Nicholas Woodman would reduce his 2018 cash compensation to $1. "As we noted in our November earnings call, at the start of the holiday quarter we saw soft demand for our HERO5 Black camera," said founder and CEO Nicholas Woodman. "Despite significant marketing support, we found consumers were reluctant to purchase HERO5 Black at the same price it launched at one year earlier. Our December 10 holiday price reduction provided a sharp increase in sell-through." Additionally, Woodman said the company plans to exit the drone market after selling its remaining inventory.A restructuring of GoPro's business will result in an estimated aggregate charge of $23M-$33M, including approximately $13M-$18M of cash expenditures as a result of a reduction in force. GoPro said it expects to recognize most of the restructuring charges in 1Q18. CNBC later reported that GoPro hired JPMorgan Chase to help it seek a potential sale of the company, though Woodman told Bloomberg that the company has not engaged the bank to explore a sale. Woodman told CNBC that "If there are opportunities for us to unite with a bigger parent company to scale GoPro even bigger, that is something that we would look at." Woodman told Bloomberg it makes sense to consider the company's options, including a possible takeover, but that the company has to build itself as if it intends to stay independent.

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Michael Molman 2 years ago Contributor's comment

$GPRO is a dead company walking. It has no real growth potential and has to deal with increasingly tough competition. Exiting the drone market, which is still largely in its infancy but is growing I think was a mistake. Only hope for Go Pro is to be acquired.