GoPro Second Quarter Earnings Preview (45.86 -0.46)
Recent IPO GPRO is expected to report its first earnings as a public company tonight after the close. There is a conference calls scheduled for 17:00. The Capital IQ consensus calls for EPS of $0.07 on revenue of $238.0 mln. It is unclear if the company will provide guidance, but Q3 Capital IQ consensus calls for EPS of $0.04 on revenues of $251.0 mln.
Background: GPRO manufactures moutable and wearable cameras and accessories, enabling professional quality image capture. Its core product is the HERO line of devices with the first version being launched in 2009. It then launched the HERO2 camera in 2011, the HERO3 in 2012, and the HERO3+ in 2013.
Looking at its 1Q14 results, revenue fell 8% year/year to $235.7 million, again, due to the product delays of its HERO3 Black edition in 4Q12. These production delays correspondingly delayed shipments until 1Q13, which resulted in revenues in 1Q13 that did not reflect the traditional seasonality in its business. The three months ended March 31, 2014 were not similarly affected. GPRO says that in order to launch its HERO3 line in time for the 2012 holiday season, it had a shorter design and manufacturing cycle. Consequently, its initial production run of its HERO3 Black edition devices suffered from a number of design issues, part shortages, and manufacturing problems.
On the positive side, gross margin improved by 590 basis points from a year ago, mainly due to lower product costs for its HERO3+ devices compared to the prior generation HERO3 devices. Additionally, there was a 3% increase in ASPs of units shipped. Going forward, GPRO says it expects gross margin to fluctuate based on product mix, changes in product costs, and changes in average selling price. Robert Baird said it believes company is uniquely positioned within the fast-growing POV camcorder segment. The firm also sees opportunity for company to monetize the compelling content generated by its capture devices. Additionally, the firm expects EPS growth to outpace rev growth on better near-term product margins and longer-term SG&A leverage. That being said, the firm views the shares as fairly valued at current levels, with upside on the potential over-delivery of near-term results.
Options Activity
Background: GPRO manufactures moutable and wearable cameras and accessories, enabling professional quality image capture. Its core product is the HERO line of devices with the first version being launched in 2009. It then launched the HERO2 camera in 2011, the HERO3 in 2012, and the HERO3+ in 2013.
Looking at its 1Q14 results, revenue fell 8% year/year to $235.7 million, again, due to the product delays of its HERO3 Black edition in 4Q12. These production delays correspondingly delayed shipments until 1Q13, which resulted in revenues in 1Q13 that did not reflect the traditional seasonality in its business. The three months ended March 31, 2014 were not similarly affected. GPRO says that in order to launch its HERO3 line in time for the 2012 holiday season, it had a shorter design and manufacturing cycle. Consequently, its initial production run of its HERO3 Black edition devices suffered from a number of design issues, part shortages, and manufacturing problems.
On the positive side, gross margin improved by 590 basis points from a year ago, mainly due to lower product costs for its HERO3+ devices compared to the prior generation HERO3 devices. Additionally, there was a 3% increase in ASPs of units shipped. Going forward, GPRO says it expects gross margin to fluctuate based on product mix, changes in product costs, and changes in average selling price. Robert Baird said it believes company is uniquely positioned within the fast-growing POV camcorder segment. The firm also sees opportunity for company to monetize the compelling content generated by its capture devices. Additionally, the firm expects EPS growth to outpace rev growth on better near-term product margins and longer-term SG&A leverage. That being said, the firm views the shares as fairly valued at current levels, with upside on the potential over-delivery of near-term results.
Options Activity
- Based on GPRO options, the current implied volatility stands at ~ 86%, which is ~ 26% lower than historical volatility (over the past 30 days). Based on the GPRO Weekly Aug01 $46 straddle, the options market is currently pricing in a move of ~11% in either direction by weekly expiration. (Friday). GPRO calls are outpacing puts in early trade (~4.0K calls traded vs ~2.2K puts).
- GPRO has outperformed the Nasdaq since its IPO with (GPRO +45% vs the index gaining 1%). On a positive report, look for resistance near the $49.00-49.50 vicinity. On a negative report, the $41.90-42.50 area may provide support.