The Case Against GoPro

The share price of action camera and technology company, GoPro (GPRO), dropped to a historic company low of $7.24 a share on Tuesday, March 14th. This significant fall should come as no surprise since both Goldman Sachs and Citibank’s Global Global Markets group reported their position on the stock as “sell” just last week. Citi began coverage on the company with their “sell” announcement. Additionally, the company reported a net (loss) of ($419) Million during 2016, the first reported net loss in company history, and a ($3.01) loss per share in 2016.

Goldman Sachs analyst, Simona Jankowski, stated, “GoPro faces significant challenges following saturation of its core action cameras market, product rollout issues in the holiday season, and a disappointing entry into the drone market.” Jankowski later added Goldman Sachs forecasts a negative Future Cash Flow for the company until 4Q17.

The company held an impromptu analyst/investor call yesterday to discuss foreseeable 1Q earnings as well as plans for the rest of 2017. CFO Brian McGee stated that he expects GoPro to be full-year non-GAAP EBITDA positive for 2017 as well as be non-GAAP EBITDA positive ahead of Q4, their most profitable quarter primarily because of the holiday season.

After being asked whether the company would relaunch their Karma drone, CEO Nicholas Woodman stated that “We’re not going to comment on our roadmap … GoPro does remain dedicated to the drone category. We’re very happy with what we have accomplished with Karma and we are happy with its initial performance out of the gate and we’re going to look forward to build upon everything we’ve learned with the development of this first product.”

Lastly, some important factors to focus on when evaluating GoPro’s present and future level of attractiveness are their 52-week price high and low levels. GoPro’s shares are trading -57.18%  downward from the 52-week high mark and -4.30% below from the 52-week low mark.

So, what does this tell us about GoPro? Nothing good. The company has been fighting an uphill battle in trying to expand their product offering while also trying to expand into new markets. Woodman mentioned that the company would be offering its products in India and other Asian markets this year, and while this is a positive sign for future earnings, it still limits GoPro’s long-term revenues.

We can expect that these expansions will be short-lived. They will provide GoPro with short-term revenue boosts while the company will still struggle to maintain positive revenue growth because of its products’ highly saturated market and other less-expensive alternatives offered by its competitors, particularly in Asia.

Looking outside the action-camera market, GoPro fell short of successfully launching their Karma drone. The product was recalled by the company when hundreds of units failed to sustain altitude and crash landed during use. The drone has a shorter battery life and lacks many features that its competitors provide such as being able to follow the user autonomously. However, even without these flaws, the product still fails to compete. GoPro insisted that the drone also be a handheld camera, similar to the company’s Hero products. Essentially, it’s just another Hero that can fly.

With all of these challenges and obstacles in GoPro’s present and future, it is hard to see the company flourishing anytime soon. Overall, I’m bearish on the camera company and would advise investors to sell.

Ali Punjani
Independent Business Blogger

 

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