Stiff Competition and Smartphone Cameras To Suppress Gross Margins For GoPro Inc. (GPRO): Andrew Uerkwitz

GoPro Inc. (NASDAQ:GPRO) impressive run in the market came to an end after independent research firm Oppenheimer downgraded the stock to a ‘sell.’ During an interview on CNBC, Oppenheimer’s Andrew Uerkwitz, reiterated that the downgrade was based on valuation of the company’s fundamentals arguing that the growth rate would likely decelerate heading into 2015-2016 fiscal year.

“If we think about 2014, we do think it is going to be a big year. I think the holiday season is going to be great but as GoPro pivots away from action capture what they have been known for into what we know life logging you know, taking pictures of your kid’s videos, of your kid’s weddings etc. I think that is going to be a very difficult market to crack, “said Mr. Uerkwitz

Uerkwitz praised GoPro Inc. (NASDAQ:GPRO) rise to fame to become the world’s largest camcorders producer but reiterated that the future could prove to be more challenging. Oppenheimer now has a share price target of $45 on the stock, following on the heels of JPMorgan Chase & Co. (NYSE:JPM), which also downgraded the stock to a neutral.

The biggest headwind according Uerkwitz will come when the company starts competing hand in hand against smartphones.

“Camcorder market was 24 million units 2010; it’s falling only down to about 13 million units last year, and if you take GoPro Inc. (NASDAQ:GPRO) out of it, it will be even worse. Smartphones are taking a lot of share of the video capture market. […] To take a picture of your kids, to share on Facebook Inc. (NASDAQ:FB) we think it is much-much easier to use your smartphone. So we do not think the overall Camcorder market is going to grow nearly as rapid as the rest of the street, “said Mr. Uerkwitz.

The analyst also expects GoPro Inc. (NASDAQ:GPRO) to face stiff competition in the near future with the entry of more players into the space. Mounting competition in the future should suppress gross margins according to Uerkwitz.

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