GoPro stock takes off after big profits, as switch to DTC model pays off

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Shares of GoPro Inc. climbed to a three-year high on Friday, after the wearable action camera maker posted third-quarter profit on revenue that more than doubled, beating Wall Street expectations by wide margins.

Oppenheimer analyst Andrew Uerkwitz then raised his share price target by 25%, to $ 10 from $ 8, saying GoPro’s strategic shift to a more direct-to-consumer (DTC) model and subscription, announced just two quarters ago, has been “outstanding”. He reiterated the outperformance rating he had on the stock for at least two years. “As execution continues and confidence grows in a series of sustainable multi-year cash flows, we believe there are many more benefits,” Uerkwitz wrote in a note to clients.

Le stock GPRO,
+ 20,54%
climbed 24.2% in morning trading, to trade above the $ 8 mark for the first time since December 2017. It has now climbed 89.4% since the start of the year, to bring GoPro’s market cap to $ 1.30 billion.

In comparison, the Nasdaq Composite COMP,
-0,06%
rallied 32.0% this year and the S&P 500 SPX,
+ 0,02%
gained 8.5%.

FactSet, MarketWatch


The company said net profit of $ 3.3 million, or 2 cents per share, Thursday evening, after a loss of $ 74.8 million, or 51 cents per share, in the same period a year ago. Excluding one-time item, GoPro fell to adjusted earnings per share of 20 cents after losing 42 cents per share, beating the FactSet EPS consensus by 6 cents.

“In the third quarter of 2020, our direct-to-consumer, subscription-centric strategy broadened margin, increased number of subscribers and significantly reduced our operating expenses, resulting in GAAP and non-GAAP profitability.” said Brian McGee, chief financial officer. “This approach also allows for efficient management of working capital as we [days sales outstanding] 25% decrease sequentially, reduced channel inventory and reduced our own inventory investment. (GAAP refers to generally accepted accounting principles and non-GAAP refers to adjusted earnings.)

Revenue climbed 113.9% to $ 280.5 million, well above the FactSet consensus of $ 234.5 million. Subscribers increased 65% to 501,000.

Gross margin improved from 21.7% to 35.4%, with average selling prices increasing 11% to $ 304.

“The third quarter has been a strong one for GoPro from start to finish, culminating with the successful launch of our stunning new flagship, HERO9 Black,” said Founder and CEO Nicholas Woodman.

GoPro Inc.


Wedbush analyst Michael Pachter then raised his stock price target to $ 8 from $ 6 as the results showed the company’s strategic change was going smoothly. He did, however, reiterate the neutral rating he had on the stock since January 2018 at the latest, citing a review.

JP Morgan’s Paul Belden reiterated his neutral rating and kept his stock price target at $ 8, but was also optimistic about GoPro’s strategic change.

“The move to the subscription service provides better visibility into customer bases, more consistent cash flow, and provides a nice avenue to sell accessories and drive camera upgrades in the future,” wrote Belden.

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