GoPro (GPRO) Products Won't Get 'Eaten by Phones'; Sterne Agee CRT Starts at Buy

(Updated - September 29, 2015 7:51 AM EDT)

Sterne Agee CRT initiated coverage on GoPro (NASDAQ: GPRO) with a Buy rating and a price target of $45. Analyst Rob Cihra thinks consumers want a 'GoPro', not an 'action camera', and he doesn't think its products will get "eaten by phones."

The analyst explained, "History is littered with one-function products/ companies that ultimately just get consumed into smartphones (e.g., digital cameras, mp3 players, Palm, Flip), and the iPhone 6s and Galaxy S6 now shoot 4K video, but we see GPRO’s unique defense being it's expressly designed for situations/environments where users wouldn’t want to risk wrecking their phone."

Cihra continued, "We see growth taking a pause in 2H15, with HERO4 Session launched July but looking like GPRO's only “new” product for the year and so far disappointing. With a tough comp off last year’s 4Q14, we estimate 4Q15 revenue just +4%Y/Y and our FY15 EPS is below consensus. But we think FY16 then sets up as a strong new product year driven by HERO5 and launch of GPRO’s first consumer quad-copter, with our estimate cameras grow +18%Y/Y to 8.7mil and revenue +24%Y/Y to $2.3B."

Cihra thinks GoPro needs to prove that it's not just a fad and pointed out its focus to address some of the biggest trends in consumer tech, including wearables, social media, drones, and VR.

The analyst concluded, "Pulling this together, we disagree with one of the GPRO bear cases from day 1, namely that other consumer electronics companies like Sony, Samsung, etc., and cheaper-still Chinese copies, will simply commoditize GPRO’s premium positioning. Like customers who didn’t want an mp3 player but only wanted an iPod, so too do we think consumers don’t want a wearable camera, they want a GoPro. This said, a big lesson learned there was the iPod differentiated not just on brand and hardware but mostly, we believe, on superior iOS Software/User Interface and then the iTunes Ecosystem. Cameras don’t really lend themselves that far in either but we believe it is nevertheless critical for GPRO to keep trying to build out whatever competitive moat it can in value-added software and associated network effects."

For an analyst ratings summary and ratings history on GoPro click here. For more ratings news on GoPro click here.

Shares of GoPro closed at $32.31 yesterday.

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