GPRO Stock: Is It Time to Bail on GoPro, Inc.?

GoPro-StockGPRO Stock May Be Down, But It’s Poised to Skyrocket Soon

GoPro, Inc. (NASDAQ:GPRO) took a real beating in markets last week. GPRO’s stock price, however, is not down due to the company’s products being bad. It’s because they seem to be too good.

The GoPro stock price fell by nearly 19% since the company released its third-quarter earnings report last week, which to a casual observer might indicate that something is seriously wrong with the company. But the reality is in fact quite the opposite, because GoPro posted third-quarter revenue of $400.3 million, or up 43% from July to September. But that figure unfortunately failed to live up to analysts’ forecast of $433.6 million, which caused markets to turn suddenly bearish and press down on the GoPro stock price. (Source: “GoPro Reports Weak Sales, Guidance,’ Wall Street Journal, October 28, 2015.) Total third-quarter profits stood at $18.8 million.

That result is that the GoPro stock price is down approximately 65% since its 2015 peak.

But What’s the Real Issue with GoPro Stock?

The truth might surprise you, because when you manufacture cameras which consumers fall in love with, you could run into an issue where they simply don’t want to replace them. The market for action adventure cameras, no matter how well-priced, can only grow at a certain pace. GoPro was bound to run into what appears to be an oversaturation issue.

GoPro might make the best durable cameras in the world, and at a relatively competitive price, but people just aren’t buying them like they used to.

With about 18 million cameras sold to date, the latest data seems to suggest that this is a very real problem that GoPro faces. Resolving it will either make or break the company as it attempts to regain the market expansion and momentum it once had. (Source: “Why GoPro’s stock price is crashing today,” Forbes, October 29, 2015.)

Most interestingly, GoPro’s revenue in North America dipped by about seven percent in the third quarter. Despite a rise in sales in Asia, this was a solid indicator that the company is simply slowing down. Indeed, more than half of GoPro’s sales revenue is generated outside the U.S.

Emerging markets such as China, with a blossoming middle class that has strong appetites for high-end electronics and status items, have picked up the slack and even contributed to a rise in revenue, but there is no indication that the same phenomenon won’t follow in Asia. Chinese buyers are likely to follow the same consumer behavior as their American counterparts and the company could see sales taper off there as well.

Quite paradoxically, it appears many GoPro users also favor the simplicity of the company’s earliest models. (Source: “GoPro takes a nosedive,” CNN, October 29, 2015.) Despite the latest models featuring sophisticated options not seen in prior ones, GoPro enthusiasts don’t tend to place a high value on 240 frame rate shots or time-lapsed landscape pictures. What they want is a high-quality durable camera that is simple to use, leaving them to focus on the activities they are busy recording.

So How Does GoPro Plan to Get Out of This Mess?

GoPro has not been slow to recognize this issue and has made some strides to address these consumer desires. The company has seen declining returns on investment in complex features, which has led to efforts at sizing camera models down. The HERO4 Session, for example, is a stripped down, basic camera which operates much like its predecessors, yet is about half the size.

But let’s get real, here. Nobody is lining up to buy a downsized camera which was tiny to begin with. The sales numbers show that quite abundantly.

Inventory turnover rates are way down; from 6.3 annually a year ago to 3.4 today. (Source: “Is the GoPro Too Awesome for Its Own Good?” Bloomberg, October 30, 2015.) The reality facing the GPRO stock price is twofold: existing GoPro customers are simply not looking to upgrade their cameras, and new customers are not buying the company’s new models as fast as they once did.

The result? Strong revenue growth, but geographically shifted, and underwhelming responses to new products. This does not bode well for the GoPro stock price forecast.

GoPro Stock Could Be Skyrocketing Soon

GoPro has embarked on an ambitious plan to augment its camera manufacturing and sales with expansion into the media realm. GoPro announced last month that it will be allocating millions of dollars into a rewards program to incentivize athletes and performers to produce content and upload it to the company’s media platforms. With user-generated content, GoPro could very well leverage itself as the purveyor of cutting-edge action adventure content. Once this is monetized, GoPro will have a significant realm in which to expand and complement its camera sales.

But there are other notable efforts in the pipeline which could pay off extremely well for the company. GoPro in fact sunk $67.3 million into research and development in the third quarter; which equals about 17% of overall sales revenue. The result has been a 16-camera rig which is capable of taking spherical videos for virtual reality application. (Source: GoPro Spherical Solutions, GoPro. last accessed November 2, 2015.) This technology works by digitally weaving together captured shots to produce seamless 360 degree media. There is one other virtual reality camera in the pipeline, in addition to the GoPro drone, which will be hitting markets early in 2016.

The Bottom Line on GPRO Stock

With these and other upcoming projects, GoPro has a solid formula for medium- to long-term growth. When you combine this with its ambitious expansion into the social media realm, as well as the holiday shopping season ramping up, the stage might be set for the GoPro stock price to soar.

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