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How Low Will GoPro Go?

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GoPro Inc. (GPRO​) moved sharply lower despite reporting first quarter earnings of $(0.44) that were in-line and revenue that grew 19.1% to $218.61 million that beat with analyst estimates. During the second quarter, management anticipated revenue of $260-280 million – above $250 million expectations – but gross margins of 32.5-34.5% – below 37.3% expectations. The market seemed unsure about how to read into these results judging by the volatility in the stock.

Over the long-term, management remains on track to reach their goal of returning to full-year non-GAAP profitability in 2017. Problems with the Karma drone – which was initially recalled – also seem to be resolved as sales have been “off to a strong start”. And finally, user engagement for its Quik mobile video editing app appears to be on the rise with a 200% year-over-year increase and 5.2 million installs during the first quarter.

From a technical standpoint, the company trades just above its lower trend line resistance after breaking down from its 50-day moving average at $8.76. A breakdown from these levels could lead the stock to S1 support at $7.38 – a sizable 15.8% decline, while upside is limited to the 50-day moving average or perhaps R1 resistance at $9.79. Looking at technical indicators, the RSI appears oversold at 39.17 while the MACD​ could see a bearish crossover.

Investors will be closely watching the company’s gross margins over the coming quarters to see if they stabilize, but in the meantime, traders will take advantage of wide trading bands and significant volatility to take advantage of short-term opportunities.

Charts courtesy of StockCharts.com. Author holds no positions in the stocks mentioned except through passively-managed index funds.

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