GoPro Earnings Report: GPRO Stock's Success Not Tied to Revenue, Sales

GoPro Inc. (Nasdaq: GPRO) stock is under the microscope today (Thursday) as the company reports earnings after the bell.

GPRO stock has lost its early momentum. It has tanked almost 30% since hitting a high of $98.47 on Oct. 7, and a miss today will send the stock even lower.

GPRO stockAnalysts expect earnings per share (EPS) of $0.08, on revenue of $263.5 million (but I'll tell you later why those won't be the most important factors to watch in today's report).

Earnings per share of $0.08 would match the EPS GoPro posted last quarter. Current revenue estimates are 7.7% higher than the $244.6 million it reported in Q2.

JPMorgan Chase & Co. (NYSE: JPM) analysts expect GoPro to beat those estimates. This week, a note to investors said they also expect a year-over-year revenue jump of 38%.

Looking forward, GoPro should see strong sales figures through the rest of 2014. GoPro's brand received a huge boost through this summer's IPO. The stock's initial run helped too.

The company also released a new camera in September, the Hero 4. The device should see strong sales figures through the holiday shopping season.

But don't be distracted by revenue growth and camera sales when GoPro reports earnings this evening. Those figures will move the stock tonight and tomorrow, but there is a long-term factor that's much more important to look for...

GPRO Stock's Success Tied to This One Factor

When GoPro held its IPO in June, company officials detailed their desire to turn GoPro from just a hardware company into a media company.

At the time, it had already amassed 470 million views and 1.8 million subscribers on its YouTube channel. The company regularly posts footage from extreme sports athletes using its devices.

GoPro Stock History

The GoPro IPO in late June was one of the most hyped initial public offerings of 2014. The company raised $427 million through the deal, and the stock immediately took off. After four days, GPRO stock was up 103%. At its early-October high, it was up 310% from its $24 offer price.

But the drops for GPRO have been stark, too. On Oct. 2, shares fell 11% in just hours. That day, Chief Executive Officer Nick Woodman found a loophole that allowed him to sell $532 million worth of stock to charity.

Even good news hasn't always translated into profits for GPRO shareholders.

In Q2, the company beat earnings estimates by $0.02, and posted a year-over-year revenue increase of 38.1%. That still wasn't enough to lift the shares. They dropped 15% following the report.

Now, GoPro officials want to create their own programming channel. Cable TV networks, satellite TV networks, Netflix Inc. (Nasdaq: NFLX), or Inc.'s (Nasdaq: AMZN) streaming service are reportedly all options.

GoPro's progress toward this goal is by far the most important long-term factor from tonight's report.

Creating additional media would help GoPro monetize the customers who have already purchased equipment.

"Media is the best use of their technology, so it makes sense to enter that space," Money Morning Chief Investment Strategist Keith Fitz-Gerald said. "My only hesitation is that they better have a really good game plan because they're going up against companies like Apple (Nasdaq: AAPL), Google Inc. (Nasdaq: GOOG, GOOGL), and YouTube."

Therein lies the problem. GoPro and its products are easily replicable. It's just a matter of time before the competition really heats up.

"The GoPro cognoscenti are screaming that the company's products are the best at capturing people doing all sorts of wacky, wild, daring, and imaginative things," Fitz-Gerald said. "You'll get no disagreement from me. But there is no compelling evidence that GoPro can provide a lasting alternative to the greatest threat to the company's relevance - smartphones. And that's the crux of the issue. The company offers a feature - albeit a really cool one."

"There's no reason whatsoever to believe that its competitors won't catch up... that Apple and others won't come out with products that match or exceed GoPro's capabilities or be easier to use."

Fitz-Gerald isn't the only one bearish on GPRO.

Just this week, analysts from Oppenheimer initiated an underperform rating on GPRO stock. They cited shrinking growth outlook, unrealistic expectations, and the company's huge valuation. Oppenheimer has a price target of just $45 on GPRO shares.

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