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Summary

  • GoPro reported non-GAAP earnings per share of 8 cents compared to analysts' estimates of 6 cents.
  • The positive news with a negative reaction confirms my view that the stock was overvalued.
  • GoPro increased in value so much that the stock was bound to decline after the earnings were released.
  • I went negative on GoPro at $47; this was a profitable trade idea.

GoPro's (NASDAQ:GPRO) revenue in the second quarter was $244.6 million compared to $177.1 million 2Q 2013. This was a 38.1% increase. Revenue in the first quarter was $235.7 million. It increased 3.8% from that amount. CEO Nicholas Woodman stated that the company's YouTube video views were up 200% from last year. Non-GAAP gross margins increased from 32.3% last year to 42.2% this year. Last quarter's gross margins were 41.1%. Non-GAAP operating income was $17.8 million this quarter compared to ($3.2) million in Q2 2013 and $20.9 million in Q1 2014. Non-GAAP net income was $11.8 million or 8 cents per share. This compares to ($3.2) million in last year's second quarter and a 3 cent per share loss. The first quarter had $14.3 million in net income and a 10 cent per share profit. The company also released GAAP earnings and gross margin figures. GAAP gross margins were 42.1% for the quarter compared to 32.1% last year and 40.9% last quarter. GAAP net loss was ($19.8) million or ($.24) per share this quarter. These figures were ($5.1) million or ($.06) in Q2 2013 and $8.5 million or ($.08) in Q1 2014. Operating loss was ($16.7) million this quarter and was ($6) million last year. Last quarter the company had an operating profit of $16.6 million.

I will now review the highlights for the quarter. The GoPro App 2.5 for iOS and Android was released which lets users stream playlists content directly to their phones. The company launched the Sportsman Mount for hunting and fishing and the Music Edition for instruments and microphones. It released 2 popular accessories which were the Gooseneck and 3-Way mounts. The firm launched a channel on Pinterest and Xbox 360. In July, the company launched a channel on Xbox One with exclusive content. The company won 4 Webby awards. The GoPro CineForm Codec was standardized by the Society of Motion Picture and Television Engineers.

In my article "GoPro Is All Hype," I expressed doubts about the company's long-term ability to monetize YouTube views. This doubt continues. This leads me to remain bearish on the stock in the long term. With this being stated, I plan on covering my short position if the stock reaches the mid-30s in the next few days as the stock corrects. It was fairly obvious that the stock would decline after earnings were released because of the enormous run up in the stock. The cameras are spectacular for outdoor enthusiasts, but this is a small market. I doubt it has broader appeal for the everyday consumer.

Source: Update: No More Momo For GoPro