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Should You Buy GoPro Inc (GPRO) Stock Going Into Q4 Earnings?

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GoPro Inc (NASDAQ:GPRO) stock is on a tear going into its Q4 earnings. After crashing by more than 50% last year, the stock has returned around 25% in this month. Defying the overall downbeat mood in the market, GPRO stock jumped more than 7% yesterday after news emerged that BlackRock, Inc. (NYSE:BLK) has increased its stake in the action camera maker.

In a report filed with the SEC, BlackRock disclosed that it has purchased additional one million shares of GoPro, taking its stake in the company to more than 6%. After a long time, since mid-October, MACD for the stock has turned bullish, indicating that GoPro stock has strong momentum going into the earnings. GoPro reports its Q4 2016 and FY 2016 earnings on Thursday, 2nd February.

GoPro Inc (NASDAQ:GPRO), Sign, Logo, Brand, People, Presentation, Hero 4, Be hero, Thailand

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Will GoPro Earnings Meet Expectations?

Analysts’ expect the action camera maker to report an EPS of $0.23 against a loss of $0.08 it had reported in Q4 2015. On the revenue front, GoPro Inc (NASDAQ:GPRO) is expected to report $577.01 million, a 32.2% jump from what it had reported in the same quarter last year. The analysts’ estimates are lower than the company’s own guidance. GoPro has guided for $625 million in revenues and EPS of $0.3.

While the YoY growth expectation paints a very optimistic picture, investors must keep in mind that 2015 was a gap year for GoPro in terms of new product release. In 2015, GoPro had released only the Hero4 Session camera which had turned out to be disastrous from the brand as well as margin perspectives. Compared to 2014, when the company had launched the Hero 4 camera, these estimates fall short. Back then GoPro had reported an earnings of $0.74 a share on revenues of $633.9 million. Many analysts consider this underperformance as a sign of increased competition and the saturation of the action camera market.

GoPro Inc (NASDAQ:GPRO)’s earnings are likely to come in line with expectations. During the holiday season, the company had reported that its camera’s are seeing strong demand. Camera unit sales were up 33% YoY on GoPro.com and up 35% YoY at other major retailers. The ASPs will be higher this year due to the higher percentage of Hero 5 cameras in the sales mix. While the recall of Karma drones was definitely a missed opportunity for GoPro, the company had an unexpected hit in its $300 Karma Grip. The sale of Karma Grip, which is an electronic stabilizer, will help in improving the margins further. Pacific Crest analyst Brad Erickson sees GoPro reporting a better than expected quarter due to strong demand for its cameras. To quote him (1):

“In light of better-than-feared sell-through, we are raising our unit estimates by a bit more than 10% to 2.1 million units in Q4 from 1.9 million and are raising our ASP estimate slightly as our store checks showed an impressive ability to pivot point-of-purchase displays to selling the Karma Grip ($300 electronic stabilizer) when it became clear the Karma would not be launched.” 

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