Why GoPro Stock Is A Big Risk Even After The Recent Post Earnings Sell-Off

Trading in shares of wearable camera manufacturer GoPro (NASDAQ:GPRO) had to be halted for 25 minutes after a disastrous earnings performance. The GoPro stock tanked almost 20% in after-market trading following the company’s Q4 2015 earnings call where the company posted a double-miss, and then proceeded to issue terrible Q1 2016 guidance. GoPro reported Q4 2015 revenue of $436.6M, down a massive 31.1%Y/Y, and $59.5M below the consensus on Wall Street. Non-GAAP EPS of -$0.08 compared poorly to the $0.99 posted by the company during last year’s comparable quarter.Wall Street expected GoPro to break even. On a GAAP basis, GoPro’s bottom line performance looked even worse after posting a net loss of $34.451M (EPS of -$0.25), compared to a net income of $122.26M (EPS of $0.83) that the company posted in Q4 2014.

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GoPro has its deep product price cuts to blame for the huge losses. The company slashed prices of its Hero4 Session camera from $400 to $200. The effect on GoPro’s gross margin was incredible. GoPro’s gross margin fell from 48% in Q4 2014 to just 29.6% in Q4 2015.

That said, it was GoPro’s terrible Q1 2016 guidance that really did the damage. GoPro said that it expects revenue of $160M-$180M during the current quarter, a massive 50.4%-56% year-over-drop, and way below Wall Street’s expectation of $298M for the period. To contrast that with what it achieved in Q1 2015, GoPro’s top line had expanded 54%Y/Y, to $363M. So, the guidance implies a big fall. Meanwhile, the company said that it expects gross margins to come in at 36%, an improvement over fourth quarter gross margins, but still way below the 45.1% gross margins it posted during Q1 2015.

For the full year, GoPro said that it expects sales of $1.4B-$1.5B, a year-over-year decline of 6.3%-12.5% compared to $1.6B revenue the company posted in 2015. The current year will, therefore, mark the first time that GoPro records revenue decline for a full year.