Street Check: Longbow makes prescient call on GoPro ahead of warning
Shares of GoPro (GPRO) are sliding after the company lowered its fourth quarter revenue outlook, announced that it will be reducing its global workforce, said its COO will be departing the company in February, and that it will exit the "untenable" drone market. Predicting the company would issue a negative pre-announcement this week, Longbow analyst Joe Wittine had downgraded GoPro to Neutral ahead of the news. PRELIMINARY RESULTS, DRONE MARKET EXIT: GoPro has announced preliminary financial results for the fourth quarter. The company cut its quarter revenue outlook to $340M from $460M-$480M, which includes a negative impact of approximately $80M for price protection on HERO6 Black, HERO5 Black and HERO5 Session cameras, as well as the Karma drone. GoPro also announced that it is reducing its global workforce from 1,254 employees as of September 30, 2017 to fewer than 1,000 employees worldwide, and that its founder and CEO Nicholas Woodman will reduce his 2018 cash compensation to $1. A restructuring of GoPro's business will result in an estimated aggregate charge of $23M-$33M, including approximately $13M-$18M of cash expenditures as a result of a reduction in force. GoPro expects to recognize most of the restructuring charges in Q1 of 2018. Additionally, the company disclosed that Chief Operating Officer Charles Prober is departing the company effective February 16, and that Senior Vice President, Corporate/Business Development, General Counsel and Secretary Sharon Zezima has resigned from the company effective March 30. In this morning's press release, GoPro also said that "Although Karma reached the #2 market position in its price band in 2017, the product faces margin challenges in an extremely competitive aerial market. Furthermore, a hostile regulatory environment in Europe and the United States will likely reduce the total addressable market in the years ahead. These factors make the aerial market untenable and GoPro will exit the market after selling its remaining Karma inventory." MOVING TO THE SIDELINES: Predicting the company would issue a negative pre-announcement this week, Longbow's Wittine downgraded GoPro to Neutral from Buy. Citing channel contacts, the analyst told investors that he confirmed the holidays missed GoPro's plan. While $100 price cuts late in the quarter were a partial mitigating factor, they were not enough to save the quarter, he said. Channel inventory is not unhealthy, but it is also not lean enough to create the material first quarter sell-in catalyst he had hoped for, Wittine added. Positively, Wittine noted that the new entry level camera is slated for the second quarter at the latest, with retailers hoping for a sub-$200 price point. The analyst also believed a revised Karma was forthcoming in the second half of the year, but the company has since announced its plans to leave the drone market. Nonetheless, Wittine argued that there could still be time for a long trade in 2018 on the atypical product cycle and cost-outs driving upside to consensus, though he recommended waiting-out the fourth quarter report and first quarter guidance first. PRICE ACTION: In morning trading, shares of GoPro have dropped about 21% to $5.92.