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Jan 8, 2018

S3 Analytics: Hero Camera Not Saving GoPro Revenues

GoPro Inc. (GPRO) had a disappointing holiday season and overall 4th quarter as the firm expects quarterly sales to be $340 million, significantly below its earlier $480 million estimate. Sales of its Hero5 and Hero6 cameras underperformed to the point that the company lowered prices of both its cameras by $100 in December in a failed attempt to generate holiday sales. Sales of GoPro’s Karma drone, which was expected to create revenue growth by creating a new product line, also failed to meet expectations and the firm will exit the market due to stiff competition and production problems.

GoPro is the fourth largest short in the worldwide consumer electronics sector and short sellers were trimming their short exposure to the company prior to the holiday season. Short interest, which averaged $269 million in 2017, peaked on November 1st at $361 million and has since decreased by over a third to $234 million.

GoPro short sellers are up $45.4 million in mark-to-market profits today as GoPro’s stock price is down 19.4% in mid-day trading. There is limited supply to short additional shares of GoPro and existing shorts are paying almost 15% fee to finance their short exposure. Rates are spiking today as we have seen nearly 1.5 million of new short sales with stock borrow rates hitting the low 30% range. We can also expect stock borrow recalls in GoPro as long shareholders, who were lending their shares, sell off some of their long exposure on the price drop and poor revenue expectations.

With borrow supply dwindling due to today’s increase in short activity and a decrease in lending inventory from long selling, continued weakness in GoPro’s stock price will not be due to shorts beating down its stock price but rather long shareholders exiting their positions. Shorts will not be able to get locates in size to put on additional short exposure.

In actuality, if enough longs who are presently lending their shares sold their positions today, we might see a temporary bounce in GoPro’s stock price later this week as many short sellers will be forced to cover some of their short exposure due to stock borrow recalls.

Want deeper insight into the above analysis? Contact:
Ihor.Dusaniwsky@S3Partners.net
Managing Director Predictive Analytics, S3 Partners, LLC
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.


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