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Why GoPro Stock Popped 11% This Morning -- Then Lost It All

By Rich Smith – Dec 4, 2019 at 11:18AM

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Great sales may not yield great profits.

What happened

Shares of action-camera maker GoPro (GPRO -0.10%) surged in after-hours trading yesterday and continued to climb in early trading Wednesday, after the company's founder and CEO Nick Woodman exulted in a press release that "we crushed" on Black Friday and Cyber Monday sales.  

But after surging more than 11% in early trading, by 10:45 a.m. EST GoPro stock had given back essentially all its gains, and was up just 0.5%. Why?

Action camera in a waterproof box

Image source: Getty Images.

So what

At first glance, GoPro's numbers look impressive. The company touted "30% year-over-year growth in total camera unit sell-through at major U.S. retailers" and 20% sell-through in Europe, with total sales up 120% year over year in the holiday's hottest selling period.

GoPro's new Hero 8 Black camera, retail priced at $399 before discounts, apparently accounted for 90% of the company's sales.

Based on these numbers, Woodman predicted that "the surge in demand we're seeing positions us well for full year profitability in 2019 and continued revenue and earnings growth in 2020."

Now what

And that would be great if it's how things play out. Problem is, Wall Street was already pretty confident that GoPro would achieve "profitability" of some sort this year. Consensus estimates on Yahoo! Finance actually call for earnings to approach $0.36 per share.

So why are investors having second thoughts already? Perhaps because great sales don't always mean great profits for GoPro. Over the past five years, the company has consistently booked above $1 billion in revenue, but its profit margins were still negative in three of those years.

Long story short, the jury is still out on whether "record" sales will yield record profits at GoPro. Until that's proven, investors are probably right to be cautious.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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