GoPro (GPRO) Likely to See 14% +/- Move With Earnings Tonight

GoPro (NASDAQ: GPRO) is active and moving higher (+3.5%) ahead of earnings after the close of trading today. Analysts on average see the company posting earnings of $0.70 on revenues of $580.33 million, representing sequential growth of 483% and 107%, respectively.

If history is any guide, shares will be very volatile following the report. In the company's first two reports as a public company GoPro has seen a price swing of 14%+ in either direction in the trading session immediately following results, according to data at EPS Insider. In Q2 the stock fell 14.6% the day after results. In Q3 the stock rose 14.3% the day after results.

Given the strong holiday season, Dougherty & Company analyst Charles Anderson believes the likeliest scenario is that GoPro will exceed expectations in the quarter, based on the data points he tracks. He notes, GoPro sales were up 77% YOY during the five-week holiday period, with units up 66% and ASPs up 7% YOY in the U.S., according to a presentation that retail tracking service NPD gave at the Consumer Electronics Show in January. He believes the growth rates were even higher in the preceding eight weeks, from the launch of the HERO4 and HERO to Black Friday. He also notes that GoPro supplier Ambarella (NASDAQ: AMBA) reported in December that its October quarter revenue was 6% higher than their then-estimate and January quarter revenue would be 19% higher than their then-estimate.

Meanwhile, the analyst said March quarter expectations look reasonable. "We note Google searches for "GoPro" are up 46% YOY through the first five weeks of the year globally and up 33% YOY in the U.S. App download growth appears to be similar in our checks. Consensus assumes 38% YOY revenue growth in Q115. So roughly, we see less upside to March Q guidance than we do December Q results. If we are wrong about that, the missing variable would be to what extent GoPro has begun entering new International markets."

However, while Anderson believes the company will likely 'beat' with solid guidance, valuation keeps them on the sidelines - even after the pullback. GPRO still trades at 40x our FY16 EPS estimate, he said. He would be a buyer when the multiple is under 30x, which indicates a price in the high-$30s. "We continue to like the story, but we believe GoPro needs additional chapters, which could be growing its media business, expanding into new geographies, or moving into new verticals for capture, such as drones," he concludes.

Meanwhile, bear Andrew Uerkwitz at Oppenheimer said while he expects a beat from the company he would be selling the stock given increasing competition. "We believe GoPro will see strong 4Q14 results due to sales momentum for its latest Hero 4 cameras," he said. "But we believe 2015 will prove to be a tough year to deliver the same growth the company had before. Leaving CES 2015, we sensed stronger competition from incumbents and newcomers targeting the action-camera market, but at the same time, we still struggle to believe the market for action cameras can expand significantly when smartphone cameras and software go through faster evolution with performance improvement and technological innovation (e.g., dual-camera module)."

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