the close last night, struggling sports and wearable camera maker GoPro (GPRO 6.26, +0.03, +0.56%)
issued a press release regarding the company reaching a couple milestones
regarding its key products. Specifically, during Q2, GRPO exceeded 30 mln HERO
cameras sold since its debut in November of 2009, and, it has now sold more than
four mln HERO5 Black cameras, which were launched in 4Q16.
Initially, the stock saw a positive reaction to the news, popping higher by 2.2% in after-market trading last night. However, most of those gains have since been erased. While the milestones are a nice achievement for the company, it doesn't mean anything in terms of the trajectory of its business which hasn't improved very much.
In fact, during Ambarella's (AMBA) last quarterly conference call on June 5, management commented that the slowdown in sports cameras and drones has been quite pronounced and isn't expected to improve in the near-term. AMBA is a primary chip supplier to GPRO.
Of course, investors are well aware of the issues facing GPRO by now. Unlike smartphones, for example, consumers simply aren't as willing to upgrade their GPRO cameras to newer versions. When GPRO launched its first cameras several years ago, consumer and investor excitement was palpable. Its growth rates sky-rocketed. Yet, the company was never able to duplicate its success with newer versions of its cameras nor was it able to really capitalize on its massive social media presence, which it once planned to monetize with marketing and advertising opportunities.
That said, the stock has been on a nice run of late, up about 30% since early April. On May 3, it posted an upside Q1 report, beating on both the top and bottom lines. Loss per share came in at ($0.34) vs. the ($0.36) expectation, on revenue of $202.3 mln vs. the $182 mln consensus. The results helped push the stock higher for a couple days, but, by mid-May, shares were back where they started from, prior to the report.
That makes sense, because, the results were not impressive overall. Revenue was down over 7%, even after lapping a sluggish 1Q17, and Non-GAAP gross margin slid sharply to 24.3% compared to 32.3% in the year ago period. Consequently, GPRO suffered a Non-GAAP net loss of ($47.4) mln.
What has mainly been supporting the stock, are the consistent rumors that the company will be bought out. In fact, on May 10, takeover speculation was making the rounds, and then about a month earlier, there was a report from the publication "The Information" that GPRO could be sold. Of course, this begs the question of who would want to purchase GPRO. There are a few Chinese camera and drone makers that could have some interest, such as Xiaomi and DJI.
The other question is, what price would an acquirer be willing to pay and would GPRO investors accept an underwhelming offer? As it stands now, GPRO is trading with a forward P/S of 0.75x. That's low, but, is also warranted given the troubles facing GPRO, the company also has some debt on the books, at $132 mln, which would also come into play in a buy-out scenario.
In sum, last night's news can largely be viewed as a non-event, but, GPRO remains interesting from a buy-out perspective. That, of course, is never reason enough to own a stock. Especially in the case of GPRO, which might not fetch much of a premium in a buy-out scenario given the reasons stated above.
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