Shares of GoPro Inc. tumbled as much as 8% on Wednesday and another 6% on Thursday after Morgan Stanley cut its price target on the stock nearly in half, but many analysts are still holding out hope that virtual reality and drones lead the company to a comeback.
The rating makes Morgan Stanley the most bearish bank covering GoPro on Wall Street. The average price target is still $65.25, according to a poll of 18 analysts on FactSet, but GoPro’s stock closed down 4.3% to $29.33 on Wednesday, below even Morgan Stanley’s reduced target. The action-camera company’s shares have been in free fall for months, down 70% over the last 12 months and 46% since July.
The Morgan Stanley price cut was a reflection of weak demand for the Hero4 Session, which GoPro started selling at a $100 discount last week, just three months after its launch.
While the Session was seen as an important product for GoPro when it launched in July — a way for GoPro to expand its hardware portfolio beyond its traditional fleet of Hero cameras — a group of analysts at Morgan Stanley said sentiment has grown “decidedly more negative” since the camera launched in July. The Session may be a “harbinger of future disappointments,” they said, pointing as an example to GoPro’s video-editing tools, the likes of which they believe can already be found elsewhere on Android and iOS.
“Without compelling differences in software, GoPro devices will remain a niche alternative to smartphone video capture — growth will continue to slow and fall in-line with the broader digital camera market,” the analysts said.
But there seems to be light at the end of the tunnel. Several analysts, the bearish Morgan Stanley ones included, say there remains an untapped — though difficult-to-quantify — virtual-reality and drone opportunity that can drive long-term value for the stock starting next year.
While Morgan Stanley’s analysts made no mention of Kolor, the virtual-reality production company GoPro bought in April, or Vislink, the company GoPro teamed up with in January so broadcasters could live stream footage from Hero cameras, they said they are keeping a close eye on virtual reality, and believe GoPro’s planned quadcopter will generate $150 million in revenue for GoPro next year. They also reiterated an equal-rating on the stock, which is the equivalent to neutral.
Others on Wall Street have been arguing for months that GoPro is on the cusp of creating a more valuable ecosystem. In August, Cowen & Co. said virtual reality “is an underappreciated driver,” for GoPro. In July, Goldman Sachs compared GoPro to Apple Inc. in that its hardware and software will create a “virtuous cycle” that piggyback off each other and fuel growth.
At the time, Goldman Sachs initiated coverage on GoPro’s stock with a neutral rating, predicting that its revenues would decelerate through 2015 but start to recover in 2016 with the quadcopter launch.
Written by Jennifer Booton of MarketWatch