GoPro (GPRO) is one of many tech companies navigating major supply chain issues plaguing the industry. According to Wedbush Securities Equity Research Analyst Alicia Reese, however, there may be a positive outlook on the action camera company’s stock going into the new year.
“In the near term, [GoPro has] some really nice pieces that set them apart from other consumer electronics companies,” Reese told. “Everyone’s feeling the crunch of the supply chain issues. But I think GoPro really got ahead of that. We saw some of that in Q3, where their gross margin expanded by over 700 basis points.”
Reese detail Wedbush Securities’ upgrade of GoPro stock based on their recent success in spite of supply chain disruptions and shortages, as well as opportunities for the company when travel restrictions eventually ease. Wedbush Securities, a Los Angeles-based investment firm, provides clients with securities brokerage, wealth management, and investment banking services.
Wedbush recently upgraded GoPro to Outperform from its previous rating of Neutral, along with a price target of $13.50. Ever since its successful IPO back in June of 2014, its shares have fallen flat due to declines in revenue and earnings. In the past year, however, GoPro’s stock value has risen by about 20%, trading around $10.28 today.
Reese attributed GoPro’s success in weathering supply chain constraints to its focus on manufacturing its HERO10 Black, the latest and most powerful installment in the company’s HERO line of premium action cameras. This allowed GoPro to narrow down its materials allocation and manufacturing process. In addition, Reese said that the company also raised the average selling price of the product, driving gross margins higher. She believes that this dynamic will continue through Q4 and into 2022.
“They also are pushing towards direct-to-consumer, and that’s raising gross margin — that’s a longer term play that’s been happening for a while and we think that continues well into 2022,” Reese said. “And the biggest piece of our positive thesis is that there’s ongoing revenue from subscriptions, and that’s greatly expanding gross margin.”
In terms of obstacles that may be looming on the horizon for GoPro, Reese cited the risk of an “ill-timed or ill-thought-out” merger, acquisition, or even a new product. She pointed to the company’s foray into the drone space as being one example of a product that fell flat.
“One of the things that happened in the past that really upset investors and drove investors away from the stock was their drone project. Now, that was an epic failure,” Reese said. “You know, I don’t think that’s going to happen again. I do think management has really found their niche now, and they know how to deal with their products and market their products to their customers and not go off and do something quite so outlandish.”