GoPro (GPRO) Q4 Earnings: Disappointment in the Cards?

GoPro, Inc.GPRO is slated to report fourth-quarter 2016 results, after the closing bell on Feb 2.

The company has had a bleak earnings history, having missed estimates thrice in the trailing four quarters, for an average negative surprise of 26.9%. Last quarter, GoPro lagged estimates by 29.6%.

Let's see how things are shaping up for this announcement.

Factors to Consider

A lot of things have gone wrong in the fourth quarter for GoPro. The company was forced to announce a recall of its new Karma drone after a mere fortnight of its commercial launch, as a few of them lost power during flight due to battery issues.The grounding of GoPro's drone dreams follow multiple operational stumbles, including messed up launches, production delays and missed deadlines in the recent past.

Karma's success was considered an integral part of GoPro's return to growth, along with the Hero5 cameras. In fact, the company had been hopeful that Karma would prove to be a hit during the holiday season, having just gone to market on Oct 23. Now, with Karma temporarily out of the picture in the all-important holiday season, we believe that there might be reason to expect that GoPro's fourth quarter might just be no better than its third.

In fact, in its third-quarter report, the company had also reduced its sales target for the year, in light of weak expectations from the seasonally strong fourth quarter. This spooked investors as the company had earlier anticipated to generate nearly half of its revenue for 2016 in the holiday season. The guidance for revenues for 2016 was lowered to the range of $1.25-$1.3 billion (previous guidance: $1.35-$1.5 billion).

GoPro also faced stiff competition during the holiday season, especially from, Inc.'s AMZN Echo products. This will also likely affect the fourth-quarter revenues.

At one point, the company was unable to meet the projected demand of its new action cameras due to internal issues and a compromised production ramp. We expect delayed shipments owing to production and supply chain concerns to hurt revenues in the quarter under review as well.

Further, analysts have become increasingly bearish on the stock lately, with the company's estimates moving south over the past month. The Zacks Consensus Estimate for 2016 earnings has widened from a loss of $1.97 to a loss of $1.99 per share in the past month, thanks to three downward revisions compared with none upward.

Unsurprisingly, GoPro's stock has had a dismal run on the bourse - having recorded an average return of just 5% over the past one year, compared with the Zacks categorized Audio/Video Home Products industry's 33.6%.

However big the issues it faces, GoPro still boasts an enviable retail presence. Extremely few consumer technology companies have the kind of retail presence that GoPro has and this might work in favor of the company.

GoPro remains optimistic about the success of its hardware launches in 2016 and said it foresees returning to profitability in fourth-quarter 2016. For the to-be-reported quarter, the company anticipates to generate non-GAAP diluted earnings per share of 30 cents (+/- 5 cents), on revenues of $625 million (+/- $25 million).

This would be the first quarter to display the performance of GoPro's first significant update to its flagship line of action cameras in two years - the new Hero5 Black camera and the smaller, cube-shaped Hero5 Session. The Hero5 Black is arguably one of the best action cameras, currently, in the market and has received rave reviews.

In fact, according to the Pacific Crest analysts, the company looks to have sold more cameras than expected during the recent holiday season, which should reflect well in the upcoming results. We believe that the new products and software updates will provide a much needed boost to GoPro's top line.

GoPro, Inc. Price, Consensus and EPS Surprise

GoPro, Inc. Price, Consensus and EPS Surprise | GoPro, Inc. Quote

Earnings Whispers

Our proven model does not conclusively show that GoPro will beat earnings estimates in this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Earnings ESP for the company is currently pegged at -8.33%. This is because the Most Accurate estimate of 11 cents comes below the Zacks Consensus Estimate of 12 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Zacks Rank: GoPro currently has a Zacks Rank #4 (Sell). Note that we caution against stocks with Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

CNA Financial Corporation CNA is expected to report results around Feb 6. The company has an Earnings ESP of +13.42% and sports a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.

LPL Financial Holdings Inc. LPLA is likely to report results around Feb 9. The company has an Earnings ESP of +2.78% and carries a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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