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Fitbit and GoPro look to turn around misfortunes

Trevir Nath, director of content, Estimize
Adam Jeffery | CNBC. Bernstein believes Apple stock still "offers attractive risk reward" at the current valuation.

This year has been nothing short of a disaster for technology stocks. With fourth-quarter earnings falling flat and current-quarter results leaving much to be desired, the remaining tech companies to report this season have little to fall back on. This has fared far worse for recent tech IPOs, which have time and time again failed to live up to investor's lofty expectations. This week, two high-profile unicorns of 2015, Fitbit (FIT) and GoPro (GPRO), look to turn around their misfortunes.

Both Fitbit and GoPro garnered headlines for bringing in a new wave of innovation, but betting big on millennials with active lifestyles has been bad for investors thus far. Lately, shares of the fitness tracker and action-camera makers have come under fire. Since IPOing, shares of Fitbit have fallen 42 percent while GoPro has plunged 68 percent. The stocks continue to tank as each company repeatedly reports weak guidance. Unfortunately, ahead of earnings this week analysts are feverishly revising estimates downward for these two names.

Kicking things off, Fitbit is scheduled to report first-quarter earnings tomorrow, after the market closes. Analysts are expecting earnings per share of 7 cents on $451.45 million in revenue, according to the Estimize consensus data. Since its last report, EPS estimates have been cut 76 percent and now project a 71 percent decline on a year over year basis. Naturally, Fitbit is a big mover throughout earnings season. In the day leading up to earnings, the stock is typically down 11 percent and historically decreases 17 percent during a 30-day post-earnings period.

The largest concern around Fitbit is whether or not fitness trackers are a must-have product. Of the nearly 15 million plus trackers sold to-date, only 50 percent are in active use, with that rate declining. Even so, Fitbit remains the industry leader in fitness bands, with no sign of Apple catching them anytime soon. Last quarter, Fitbit reportedly sold 8.2 million units, which was twice that of the Apple watch in the same period. Meanwhile, Fitbit's two new products, the Blaze and Alta, have each already exceeded 1 million units sold. Still, it's never safe to discount Apple, and with its new watch on deck this year, Fitbit could be in trouble.

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Next up is GoPro. The action-camera manufacturer has been quite possibly the worst tech IPO of the past year. Despite shares tanking, year-over-year earnings dropped more than 100 percent last quarter on a 31 percent decline in revenue, with this quarter expected to fare much worse. Analysts are expecting earnings per share to decline 318 percent to -$0.56 cents on a 50 percent decline in revenue to $181.17 million, according to crowdsourced consensus data. Since GoPro's last report, profit estimates from the crowd have been cut to a loss of 56 cents a share, down from a previously expected loss of 9 cents a share; revenue expectations also fell more than 40 percent.

Lately, GoPro can't seem to do anything right. Last quarter featured declines in all key financial metrics as weaker demand and the slowdown in China took its toll. GoPro's continued investments to stay relevant and slashing the price of the HERO4 camera have also put a strain on gross margins. Meanwhile, first-quarter sales guidance in the range of $160-180 million was well below the nearly $300 million analysts initially expected.

Just last Monday, shares tumbled once again after Pacific Crest cut EPS, revenue and average selling price expectations for the next two years. The action camera space has become crowded and commoditized, with peers such as Sony and Xiaomi putting pressure on GoPro. The company's target market has become increasingly saturated with cheaper and more innovative products.

Investors are holding out hope that GoPro's Karma drone, set to launch later this quarter, will resuscitate the stock in the near future. Furthermore, it remains to be seen whether recent acquisitions in Kolor, a 360-degree video company, and video editing start-ups Stupeflix and Vemory can help GoPro out of its rut.

All bets are off when Fitbit and GoPro report later this week. While these two names have an impressive, albeit short, history of beating estimates on the top and bottom line, future expectations will of course hinge on any forward-looking guidance that is provided.

How do you think these names will report this week? Be included in the Estimize consensus by contributing your estimates here!



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