GPRO Stock: Is GoPro Inc Dead in the Water?

Looking Ahead for GPRO StockLooking Ahead for GPRO Stock

GoPro Inc (NASDAQ:GPRO) was one of the market’s biggest victims last year, but the question is this: did GPRO stock deserve to lose 81.85% over the last 12 months?

If not, the company could have a lot of unexplored upside.

To be honest, I stopped being bullish on GoPro several months ago. I decided to wait on the sidelines as the stock was falling. Now that enough time has passed, we should check to see if GoPro stock was unfairly pummeled by a bad narrative.

After all, the company’s plunge was steep considering that it has actually turned a profit in the past. Not too many young technology companies can say the same thing. That’s why it’s strange that GPRO stock fell from $64.74 to $10.71 per share in less than a year.

But to begin with, let’s assume that the market’s reaction was justified. That way we can highlight the common criticisms of GPRO stock, to see whether or not they hold water.

Reasons to Be Bearish on GoPro?

I went through some of my old notes and reviewed GoPro’s recent financial statements. Here are three things that potentially went wrong for the action-camera maker:

1. Slowing Camera Sales

One of the most devastating arguments I’ve heard is that sales in the most recent quarter fell 50% from the same period last year. With slimming margins and a growing number of competitors, it’s safe to say that top-line growth would have to slow. But to see it completely fall apart is more than a little worrying. In case you think the year-over-year numbers are distorting the company’s true performance, check out the sequential data. From quarter to quarter, GoPro sales fell 58%. It’s bad either way.

2. Widening Losses

Yes, GoPro has turned profits in the past, but the company’s gross margins have been shrinking ever since. Take, for instance, the first quarter of 2015, when GoPro made a non-GAAP profit of $35.6 million. Gross margins were roughly 45% at that time, compared to 33% in the most recent quarter, when the company made a non-GAAP loss of $86.7 million. So not only is the firm selling fewer action cameras, but it’s also making less off each sale. (Source: “Q1 2016 Earnings Results Summary,” GoPro Inc, May 5, 2016.)

3. Increased Competition

A Chinese company called Xiaomi is really taking the fight to GoPro. Xiaomi just released two drone cameras at incredibly competitive price points, while also making moves towards the virtual reality space. If this Chinese manufacturer with deep pockets sustains its attack, GoPro might continue to lose business.

Reasons to Be Bullish on GoPro?

Considering the severity of these attacks, it’s no wonder GoPro got knocked off its $65.00 pedestal. But all we really need for a bullish turn on GPRO stock is some sign that the company is worth more than its current $10.72.

Here are three potential bullish signs:

1. Virtual Reality Rigs

GoPro has taken a lot of flack for not innovating past its initial concept of an action camera. Many analysts have argued that, but it’s not an entirely fair criticism. The company was the first to build a rig for filming virtual reality content. Its 16-camera “Odyssey” rig was developed in partnership with Google and filmed content for Facebook’s 360-degree videos. In other words, GoPro has an early mover’s advantage in the virtual reality space.

2. Powerful Brand Name

If not in technology, GoPro has certainly innovated in its marketing strategies. It created viral clips for YouTube by sponsoring daredevils around the world to do wild and imaginative things. The company’s profile shot through the roof when a video of Kevin Richardson, known as the “Lion Whisperer,” filmed himself playing with full-grown lions in the wilderness. It was astonishing to see, and it worked as great advertising for GoPro. That kind of brand name could help insulate GoPro as the market grows more crowded.

3. Low Stock Price-to-Book Value

Put it this way: if all of GoPro’s assets were dissolved, it would have more than $5.00 for every $1.00 in liabilities. So from a statistical point of view, $10.71 could seem like a low share price considering that it’s only double the book value.

The Bottom Line on GPRO Stock

Now that we have explored both sides of the argument, I find myself wanting to remain on the sidelines. There are compelling reasons to watch this stock, just not enough to turn me bullish on it again.

Xiaomi, net losses, slowing sales: there are just too many troubles at one time.