GoPro Earnings Smash Estimates - but Don't Buy GPRO Stock Now

GoPro EarningsThe GoPro earnings report for Q4 2014 was released today (Thursday) and the camera company smashed estimates.

GoPro Inc. (Nasdaq: GPRO) reported earnings per share (EPS) of $0.99 on revenue of $633.9 million. Analysts had predicted EPS of $0.70 and revenue of $580 million.

Not only did revenue beat estimates, it also grew 75% compared to Q4 2014.

Full year revenue in 2014 reached $1.4 billion. That was an increase of 41%.

Gross margins came in at 48%. The firm had previously set a margin range of 43.5% to 44.5%.

What drove revenue through the holiday shopping season was GoPro's newest camera, the Hero4. GoPro released it in September, which also helped Q3 sales.

During the fourth quarter, GoPro shipped 2.4 million devices. For the full year, total shipments reached 5.2 million.

The company has also been driving customers to its app. Downloads of the GoPro app exceeded 2.8 million in the quarter. Now more than 13 million people have downloaded the app total.

Following the bullish report, GPRO stock jumped 13% in after-hours trading. After last quarter's earnings, GoPro stock jumped 13% when the company beat expectations and raised guidance figures.

GoPro Inc. (Nasdaq: GPRO)

Closing Price: $54.37

After-Hours Performance: +13%

Market Cap: $6.96 billion

Institutional Ownership: 54%

Beta: 0.66

P/E Ratio: 151.75

This is the third straight strong earnings report for GoPro since going public. In its previous two earnings reports, GPRO beat expectations by an average of 41.6%.

And it looks like investors expected today's strong numbers. GPRO stock finished Thursday up 4.9% before the earnings report.

While today's earnings report certainly looks bullish at first glance, GPRO stock is not a good investment according to Money Morning's experts.

In fact, it's facing a major problem that's only growing larger. And it's been weighing on the stock since October...

GoPro Earnings: GPRO's Competition Problems Mount

When GoPro went public in late June, Money Morning's Chief Investment Strategist Keith Fitz-Gerald told readers that competition would be a major hurdle for GPRO.

"I'd be very concerned about the stock's longevity with competition already nipping at its heels," Fitz-Gerald said this summer. "I'm aware of half a dozen competing products that appear to be more wearable, potentially easier to use, and more consumer friendly."

"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," he continued. "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 hit the nail on the head. While the stock had a nice pop following its IPO, GPRO has tanked since.

And this month, a report from Patently Apple detailed a patent that Apple Inc. (Nasdaq: AAPL) filed in 2012 for a very similar action camera.

That news sent GPRO shares down more than 12%.

Another major red flag is GoPro's "social media" strategy. The company's footage is extremely popular on YouTube, Facebook Inc. (Nasdaq: FB), and Instagram - but that doesn't make it a social media company.

"Here's the thing," Fitz-Gerald said in November. "GPRO doesn't actually own any of the content its users upload, which means there's no way for GPRO to monetize content except by selling advertising. The notion of GPRO as a media company is laughable."

While you may tempted to buy GPRO shares following today's strong numbers, the stock faces major long-term issues.

The Bottom Line: The GoPro earnings report smashed EPS and revenue estimates today, but GoPro stock is not a buy. The company's products can be easily replicated, and other tech firms are already biting at GoPro's heels. There are much stronger, more innovative companies to invest in now.


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