Chart of the Day – $GPRO – Not Gonna Be A Hero Into the Print

by Dan February 5, 2015 3:16 pm • Chart of the Day• Commentary

GoPro (GPRO) reports their Q4 results tonight after the close, the options market is implying about a 12.5% one day move in either direction. In the stock’s short history as a public company it has averaged about 14% earnings moves (up last quarter, down the quarter before that.)

While earnings and any guidance are likely to be important in the very near term, the main event will be the 76 million share ipo lock up expiration on Feb 17th (read here).

So the question you have to ask yourself is whether or not the stock’s 15% ytd decline, and the almost 50% decline from the all time highs in October reflect a good bit of the skepticism of investors as it relates to a potential slow down in sales and the impending overhang from existing holders who will be free to sell:

GPRO chart since IPO from Bloomberg
GPRO chart since IPO from Bloomberg

The stock has held the $50 level over the last month, but to be fair, with such little trading history, it is barely a level. Yeah the stock broke above $5o in its 3rd try in September, and subsequently doubled from there in the next month, but it wouldn’t take much to have this stock at $40 if we get disappointing results and the fear of long time holders free to sell in a week in half, more than tripling the existing shares outstanding.

On the flipside, if the company were to issue a beat and raise with sentiment so poor centered around the lock-up, the stock could be a coiled spring to the upside with 63% short interest.

My view on the company is pretty simple, I don’t see the product as an innovative piece of hardware that can stand the test of time and competitors in other forms, and even before real competition has come on line price points are dropping hard.  I don’t buy the argument that the user generated content will support a sort of fast growing social media multiple, and I honestly believe the product will go the way of the Flip camera (see end of life product announcement here) as it’s way too easy for much cheaper alternatives to emerge.

So could the stock bounce after a beat off of an oversold condition with very high short interest, sure, and its probably a much higher probability outcome than pressing the recent lows, but my long term fundamental view is clearly clouding any short term trade inputs that would lead me to a bullish trade.

I would also add that this product seems to be very much related to the skiing culture, and well ski season is almost over, I suspect we start to see seasonal trends emerge. Anedcotally, when I was in Colorado skiing for a week in Dec I saw far fewer GoPro’s than I had in years past. Oh and lastly, did you guys catch the Verizon commercial during the Super Bowl that showed a surfer with an iPhone mounted on his board?? That’s coming to a theater near you, but also accessories that work with you smartphone that will make GPRO’s clunky hardware obsolete.

So my trade would be to short a bounce into the lockup.  But I would not press a low, and if the stock never bounces then maybe it is a long out of the lock up.