GoPro Inc (ticker: GPRO) shares rose nearly 16 percent on Thursday after the technology company announced it expects its first quarter revenue to end up on the high end of its previous guidance range.
In addition, GoPro announced a restructuring and cost-cutting initiative that includes 270 employee layoffs.
The news lit a fire under the slumping stock, which had fallen to new all-time lows earlier in the week. Citi analyst Stanley Kovler says the positive guidance and aggressive restructuring are signs the worst may be over for GoPro investors. Kovler has upgraded GoPro stock and raised the firm’s price target from $8 to $9.
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“We are upgrading shares to neutral as we believe recent stabilization in revenue and another significant restructuring accelerates its path to profitability to 2017 from 2019,” Kovler says.
Citi had been bearish on GoPro in the past due to its relatively high cash burn and winding path to profitability. However, Kovler says management addressed both concerns with its new $100 million operating expenses cut and double-digit 2017 revenue growth projections. Citi previously forecast only 5 percent revenue growth from GoPro this year.
In addition to potential fundamental business improvements at GoPro, investors have several other market factors on their side at the moment. Since Oct. 1, GoPro stock is down nearly 50 percent, and Kovler says investor sentiment is extremely low. Short interest is up 30.2 percent in the past year. According to Yahoo, the stock’s short percent of float currently stands at an extremely elevated 31.0 percent.
Kovler says negative sentiment coupled with the positive guidance likely limits potential near-term downside for GoPro stock.
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The critical fourth quarter will be the next potential stumbling block for the company. Nearly half of GoPro’s annual revenue comes from the fourth quarter. Despite facing increasing holiday competition from rival consumer electronics such as the Apple ( AAPL) iPhone, Kovler says GoPro will benefit from low expectations and easy fourth-quarter comps this year.
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GoPro Inc (GPRO) Shares Rise on Restructuring, Forecast originally appeared on usnews.com
