Diversified Supply Chain And New Products Will Transform Digital Imaging

Key Takeaways

• GoPro's strategic innovations and cost reductions are expected to enhance profitability and net margins, despite market challenges and competition.
  
• New product launches and subscription service enhancements aim to drive long-term revenue and earnings growth by improving technology leadership and recurring income streams.
  
• GoPro faces revenue and earnings challenges due to macroeconomic headwinds, strong competition, declining sales, product delays, and heavy reliance on future market expansion.

Catalysts

Provides cameras, mountable and wearable accessories, and subscription and services in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.

• GoPro's diversification of its supply chain strategy and management is expected to improve gross margins by 100 basis points in 2025 over 2024, aiding profitability even amidst tariff changes and competition.
  
• GoPro is focusing on broadening its product portfolio with innovations like the tiny HERO 4K camera and the anticipated MAX 2 360 camera. These exciting new products are aimed at restoring unit and revenue growth in 2026, positively impacting future revenue.
  
• The expected launch of the next-generation SoC GP3 has the potential to redefine performance standards in the digital imaging industry and enhance GoPro's technology leadership, leading to long-term earnings growth.
  
• GoPro's strategic focus on innovation, efficiency in product development, and reduction of operating expenses by nearly 30% from 2024 to 2025 is expected to enhance net margins and contribute to improved profitability.
  
• By successfully increasing subscription ARPU by 8% year-over-year and enhancing retention rates, GoPro is positioning its subscription services as a recurring high-margin revenue stream that can boost overall earnings despite short-term unit sales declines.

GoPro Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming GoPro's revenue will decrease by 1.5% annually over the next 3 years.
• Analysts are not forecasting that GoPro will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate GoPro's profit margin will increase from -53.9% to the average US Consumer Durables industry of 7.7% in 3 years.
• If GoPro's profit margin were to converge on the industry average, you could expect earnings to reach $59.2 million (and earnings per share of $0.34) by about April 2028, up from $-432.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 2.6x on those 2028 earnings, up from -0.2x today. This future PE is lower than the current PE for the US Consumer Durables industry at 8.0x.
• Analysts expect the number of shares outstanding to grow by 3.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

GoPro Future Earnings Per Share Growth

Risks

• Macroeconomic headwinds and foreign exchange fluctuations are expected to impact revenue negatively, particularly with a stronger U.S. dollar affecting top-line and bottom-line margins.
  
• Competition in the market is cited as a reason for anticipated decreases in unit sales and revenue in 2025, which would detrimentally affect overall earnings.
  
• The company is experiencing declining retail revenues, with numbers down 15% year-over-year, and direct product revenue from gopro.com is down 54% year-over-year, impacting overall revenue streams.
  
• Delays in the release of new products, such as the MAX 2 360 camera, are expected to reduce revenues in 2025, which will have a direct impact on the company’s net margins and earnings.
  
• GoPro's plans for growth depend heavily on launching new products and expanding into new markets in 2026, suggesting a short-term risk to cash flow and overall liquidity due to operating losses of $80 million and cash expected to decrease from $80 million to $50 million by the end of 2025.

Valuation

• The analysts have a consensus price target of $0.65 for GoPro based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $1.0, and the most bearish reporting a price target of just $0.3.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $767.0 million, earnings will come to $59.2 million, and it would be trading on a PE ratio of 2.6x, assuming you use a discount rate of 11.4%.
• Given the current share price of $0.52, the analyst price target of $0.65 is 19.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.