GoPro’s stock falls as strategic shift will require longer payoff period

GoPro Inc. offered a downbeat outlook for its current quarter, and its shares are selling off Friday.

The maker of action cameras said it expects $270 million to $290 million in revenue for the third quarter, along with adjusted earnings per share ranging from breakeven to 4 cents. While just two analysts follow GoPro
according to FactSet, their expectations as of July 31 were for $320 million in revenue and 16 cents in adjusted EPS.

Chief Financial Officer Brian McGee said in prepared remarks alongside Thursday afternoon’s earnings that GoPro outperformed on revenue in the second quarter amid better-than-expected sell-through of its entry-level offerings.

“This Q2 revenue overperformance, combined with retailers continuing to carry lower weeks of supply, is contributing to a softer Q3 guide,” he said. Additionally, the company called out”a larger-than-expected drop off in sales at due to the discontinuation of subscription-related camera discounts at the time of purchase.”

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GoPro shares were down about 5% in Friday morning action.

“We look forward to 2024, when we expect to reap the full-year benefit of our strategic shift, unburdened by price protection expenses of $30 million in 2023 associated with our price change,” McGee added in his commentary.

Oppenheimer’s Martin Yang noted that GoPro is trying to “revitalize its retail presence and increase sell-through by increasing marketing spend” and lowering average selling prices, trends that are causing margin compression.

“We expect this reduced profit outlook to continue” until the second half of 2024. Still, he saw “signs of progress,” including an increased retail-subscriber attach rate in the second quarter. He was also encouraged by GoPro’s sell-through outlook of 750,000 units for the third quarter.

Yang had a perform rating on GoPro’s stock.

Wedbush’s Alicia Reese took a more upbeat view of the shares, while also calling out the “encouraging” attach rates and first- and second-year subscription retention momentum.

“Over time, if these trends hold, this should drive enough margin expansion to get GoPro back to the EPS level we had previously estimated,” she wrote.

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Additionally, she said she thinks investors “investors will warm to the story over time, particularly as GoPro accelerates its share repurchases.”

She gave the company credit for “quickly” changing its strategy in response to adverse conditions such as inflation and low retail inventory replenishment, and she reiterated her outperform rating and $6 target after the report.

See also: Ad agency WPP cuts sales outlook over caution from U.S. technology companies

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