Option Trade 
GoPro Inc (NASDAQ:GPRO) Calls 
Sunday, August 16, 2015

**OPTION TRADE: Buy the GPRO Oct 2015 60.000 call (GPRO151016C00060000) at approximately $4.40. Place a protective stop loss at $1.80, and a pre-determined sell at $9.00.

by Ian Harvey

August 16, 2015


GoPro Inc (NASDAQ: GPRO), a producer of mountable and wearable cameras and accessories, has just provided us with another great opportunity to profit from this option trades, as it is now selling for less than its price before its most recent blowout earnings report.

The catalyst for this sell-off, along with the broader market, came by the way of the Chinese surprise currency devaluation last week, causing GoPro to tumble 12% in just two days before recovering somewhat on Thursday, due to Cowen & Co initiating coverage on the stock with an Outperform rating and $76 price target.

For reference in regard to our last great opportunity associated with GoPro which occurred on the 15th July ….Read This .


Previous Earnings

Last month, GoPro reported that revenue reached $420 million in Q2, beating the company's guidance of $380 million-$400 million, which was in turn well above the average mid-April analyst estimate of $332 million. GoPro's adjusted EPS of $0.35 came in far ahead of GoPro's $0.24-$0.26 guidance, and was more than double the $0.15 that analysts had been projecting just a few months earlier.

GoPro provided stellar guidance, too. The company expects revenue of $430 million-$445 million and EPS of $0.29-$0.32 for Q3. Once again, the guidance was far ahead of the analyst consensus of about $401 million in revenue and EPS of $0.22. And based on GoPro's recent track record, it seems like the guidance was probably quite conservative.

Future Earnings

GoPro has plenty of short-term and long-term growth drivers that should keep earnings rising quickly in the quarters and years ahead. In the past few months, it has launched two new products: the $299 mid-range HERO+ LCD camera and the ultra-compact $399 HERO4 Session.

Solid demand for these new models, as well as growing distribution, should bolster GoPro's sales in the second half of 2015. GoPro could also potentially refresh the high end of its lineup before the holiday season.

China – No problem!!

Last week GoPro was punished severely despite all the positive drivers going for the stock – as mentioned below.

Even though China is starting to become an important market for GoPro, it is only 1 of the top 10 markets for GoPro, which means there are plenty of markets ahead of China in terms of sales. The whole APAC region -- which includes a lot of countries beyond China -- accounted for just 17% of GoPro's revenue last quarter.

Also, remember that China’s problems have been longer term and didn’t just start last week!

The Positives!

1. GoPro Stock is Cheap

Despite GoPro's stellar growth this year and strong prospects -- driven by the continued growth of the action camera market and the company's moves into adjacent markets -- GoPro stock is hardly expensive.

It trades for just 32 times projected 2015 EPS.

Of course, a valuation of 31 times earnings puts GoPro well above the market average earnings multiple. But GoPro is hardly an average company. Revenue rose 63% year over year in the first half of 2015.

While that level of growth isn't sustainable, GoPro is poised to grow faster than all but the few most successful companies in the U.S. over the next five years or so.

2. Plans for Mobile and the Cloud

GoPro is now in the final phases of development and testing of a new mobile app that'll allow users to seamlessly trim and share the best photo and video moments captured on a GoPro. They expect to launch this experience before the end of summer.

They are also testing an alpha version of our cloud service which will support a seamless offloaded of content from GoPro cameras to be managed and viewed on other devices.

3. Becoming more “Media Business”

This means instead of "just" being a hardware-centric business they will also become a "media" company -- a long-term vision that incidentally helped it command a higher valuation with its IPO just more than a year ago.

Part of that transition requires helping GoPro camera users more easily create and manage content recorded by their various devices, which is where the cloud service and more effective photo and video editing mobile apps come into play.

Generating Additional Revenue Streams

GoPro content has the potential to generate additional revenue streams overtime. Recently they unveiled GoPro Licensing, a Content Licensing Portal that marketing professionals can use to search, sort and license content from GoPro's rapidly growing library.

4. GoPro's Quadcopter

GoPro is releasing a quadcopter in the first half of 2016. GoPro is not only still expecting an early 2016 release, but also anticipates differentiating its drone at least in part with an improved user experience.

5. Guidance Driven

On a year-over-year basis, GoPro anticipates increased revenue across all channel and [geographies], with particular strength in EMEA and APAC and with their distribution partners. Accordingly, they anticipate revenue of between $430 million and $445 million for the third quarter, and at the midpoint of this guidance it represents a 56% year-over-year increase. In the third quarter, they expect their product and channel mix to remain favorable, and the family of three premium $399 and above devices to continue making up of over 50% of our units and revenue. Their gross margin will continue to be above the long-term target [at] 46%, plus or minus 50 basis points. Accordingly, they anticipate EPS to be in the range of $0.29 to $0.32.

GoPro's long-term gross margin target is to maintain a range of 42% to 44%. And analysts, for their part, were only expecting GoPro to achieve third-quarter revenue of $401.3 million, with earnings of $0.22 per share. To explain its outperformance in the past, GoPro has stated its premium HERO4 Black and Silver camera models have comprised more than half of each quarter's revenue and units shipped since they were launched late last year. But thanks to the addition of the physically tiny HERO4 Session camera during the quarter -- which is priced the same as the HERO4 Silver at $399 -- GoPro is now set to enjoy a third high-margin contributor to its already impressive results.

Analysts Opinions

GoPro Inc stock surged Thursday, after investment firm Cowen & Company initiated coverage on it with an Outperform rating and a price target of $76. Analysts at the firm are of the view that GoPro, while being a market leader, is growing in the category it created with its range of diverse product offerings.

Cowen estimates cumulative shipments for GoPro to amount to 64 million by the end of the next four years, which in turn corresponds with a user base of 46 million. Consumers residing in the US will constitute around 45% of this base. The market will further stand to increase, taking into view the diversity GoPro’s flagship "Hero" line brings to the table.

The firm points out that instead of bringing down the prices of its flagship brand, GoPro offers five cameras starting from $130 and ending at $500. All these cameras are distinguished by resolution and additional features, which allows GoPro to target consumers from various income brackets. Additionally, GoPro’s ongoing push into content licensing will further drive up brand awareness across the globe.

Professional content brings an altogether different perspectives for sports (NFL, NHL, Tour de France) and to new places (climbing an iceberg or into a volcano) for viewers. Along with athletic apparel and shoes (NKE, UA), Cowen believes association with professional athletes increases brand loyalty. Content generated by users using GoPro’s products also does the same by leveraging trends in social media, along with audience migration from linear broadcasts to on-demand video. Cowen believes that a vibrant community of GoPro users not only reinforces brand loyalty but also pulls a new set of users.

The firm also pointed toward GoPro’s ongoing push into adjacent product categories, including consumer drones and immersive video that it deems highly accretive to user growth; it will in turn increase the company’s overall top line. Cowen regards virtual reality an underappreciated driver for GoPro’s long-term prospects.

To back up its view, Cowen emphasizes GoPro’s acquisition of French virtual reality startup Kolor, which makes the action camera pioneer a leader in various technological tools and solutions to capture immersive video.

Harvey’s Options Volatility Indicator


Therfore, it was not too surprising that GoPro stock had risen as high as $65 in the weeks following the Q2 report. Yet thanks to the recent sell-off, the stock is now cheaper than it was before investors got this huge dose of good news.

With the stock now trading at last month's price, we have been handed another great opportunity to profit with this option trade.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the GPRO Oct 2015 60.000 call (GPRO151016C00060000) at approximately $4.40. Place a protective stop loss at $1.80, and a pre-determined sell at $9.00.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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