GoPro Hero5 line of products. Image source: GoPro.
The last year has been rough for GoPro (GPRO +6.24%) as investors lost faith in the company's ability to innovate and keep customers interested in action cameras. In the meantime, competitors like Garmin and Sony have introduced action cameras that offer compelling features and prices for consumers who aren't already tied to GoPro.
Heading into the holiday season of 2016, GoPro's introduction of Hero5 cameras and the Karma drone have generated renewed buzz for the company's products. And it could provide tremendous upside for GoPro's shareholders.
Expectations are already high
Since hitting their low of $8.62, shares of GoPro have nearly doubled in the last few months as investors have bet that new products could boost sales in the second half of the year. That could be the case, but it's important to frame where expectations currently lie for GoPro.
In the third quarter of 2015, GoPro generated $400.3 million in revenue and earnings of $0.25 per share. Q4 2015 saw $436.6 million in revenue and a loss of $0.08 per share. That's a baseline for comparing the quarterly expectations from analysts below.
| Metric | Q3 2016 | Q4 2016 |
|---|---|---|
| Revenue | $315.9 million | $677.2 million |
| Earnings per share | ($0.36) | $0.46 |
Data source: Yahoo! Finance.
If we just look at the fourth-quarter numbers, analysts expect revenue growth of 55% and one of its most profitable quarters in history. But if we look back to Q4 2014, the company generated revenue of $633.9 million and non-GAAP earnings per share of $0.99, so this isn't outside the realm of possibility. For the stock to double, it'll have to crush current expectations.
Image source: GoPro.
How GoPro can impress investors
In the last two quarter of 2014 and 2015, GoPro shipped 3.47 million ($913.9 million) and 3.60 million ($836.9 million) units, respectively. If there's even a little growth from that level, it could result in a solid second half of the year for GoPro with around $900 million in revenue. But the real growth could be in drones.
Karma officially goes on sale next month and the impact for GoPro could be tremendous. Not only will the company generate revenue from the $799 Karma, but it's packaging cameras with the drone and selling accessories as well.
If we just assume that Karma sells 2% of the volume GoPro cameras did during the second half of last year, the impact would be at least $57.5 million. Five percent brings that figure up to $143.6 million. If GoPro has a hit on its hands and sells half a million Karma drones, the impact will be $400 million on the top line, at a minimum. That's how GoPro could really wow investors. And when you consider that DJI expects to sell $1 billion worth of drones this year, there's a lot of potential for Karma.
Will GoPro get its Karma back?
Asking for a stock to double is asking a lot. But GoPro has the kind of growth potential and exciting new products that could lead to an explosion in the stock. If the company can sell at least 3.6 million GoPro cameras and generate $200 million or more from Karma this year, it could impress investors -- and that could send the stock higher as quickly as the stock dropped last year.
