Are the Bears Wrong on GPRO Stock?
Perhaps it is the fate of those like GoPro, Inc. (NASDAQ:GPRO), which have risen too quickly to have to face dark realities every once in a while. After listing on the NASDAQ stock exchange on June 26, 2014, GoPro stock shot up in a few months, from $24.00 to over $90.00. Now, after touching the sky, the company that produces small, but powerful cameras has plummeted in the markets. GoPro has become the fetish of surfing, extreme sports, motorcycling, and motoring enthusiasts. A quick survey of Corvette or Harley Davidson videos on YouTube should be sufficient to reveal the potential of GoPro cameras and GPRO stock.
If more evidence is needed, consider that GoPro cameras have captured the best footage of dedicated consumers fist-fighting over the latest flat screen TV, perhaps to better enjoy the latest installment of Downton Abbey, during Black Friday at Wal-Mart. Yet, to evaluate GoPro stock simply on the performance of the last few weeks would be more ludicrous than shortsighted.
GoPro Stock Is Undervalued Here
Having reached its peak last October, GoPro’s stock fell to less than $20.00, below its original initial public offering (IPO) price. Blame the disappointing sales of its latest model, the “Hero4 Session,” which have weighted the company’s accounts for the last quarter, not to mention a complaint for alleged copyright infringement from Polaroid. Moreover, as any successful company does, GoPro has spawned competitors. While its competitors’ products aren’t as trendy, they do have the advantage of being lower in cost. These factors have affected GoPro’s stock performance; however, the jury is still out on whether or not these factors are important.
Chart courtesy of www.StockCharts.com
Indeed, this is simply the first moment of difficulty for Nick Woodman, GoPro’s founder and CEO. In 2002, while on his return from a trip surfing in Australia, the Californian, disappointed over the difficulty of filming his feats on the waves with existing cameras, invented a mini camera that could be attached to a surfboard.
Sales of the new Hero4 Session, even smaller than the original and water-resistant to boot, have disappointed, even if the company’s fans love the product. Nevertheless, if GoPro has sinned, it is only for having grown too quickly. The technology and products, including, or perhaps especially, the Hero4 Session, are excellent and the company will learn from this lesson.
GoPro said that if they had offered the Hero4 at a better price from the start, supporting it with the proper marketing, its sales would have been far higher. The fact is that in the third quarter of the year, for the first time since GoPro hit Wall Street, it has disappointed analysts with “just” $400 million in revenue and earnings of $0.25 per share, against expectations for $434 million and $0.29 per share.
What’s more, there’s the news of the legal attack on GoPro by C & A Marketing, the company that holds the commercial rights to Polaroid cameras. As C & A’s lawyers contend, the Hero4 Session has copied the cubic shape of Polaroid’s “Cube,” a similar product that appeared on store shelves 18 months earlier. If that’s the case, then Steve Jobs’ “NeXT” introduced the Cube’s shape in 1985, and the arguments of Polaroid seem overly fussy, if not exaggerated.
GoPro has lost 75% of its value over the last year and 60% in the last three months, trading under its $24.00 per share price during its stellar IPO in 2014. But GoPro’s stock market trend does not reflect the fact that the company, despite the ever-cynical analysts and their usual elusive “models” at hand, has still grown 43% compared to 2014. Such growth should cause envy and scare off the competition, especially as the full Christmas season approaches.
Yet one must forgive analysts; they bring to life Oscar Wilde’s famous maxim, “they know the price of everything and the value of nothing.” The analysts forget that GoPro has no debt and approximately $500 million of cash in its coffers. The usual analysts, such as those of Morgan Stanley, are concerned about future disappointment. Instead, they would serve investors better by noting GoPro’s potential and the quality of its products, not to mention its sales figures. (Source: “Here’s why GoPro’s stock is dropping so much,” Fortune, October 7, 2015.)
Overall, the phenomenon that GoPro is experiencing is typical—even expected—and the “analysts” should have known. GoPro has long held a monopoly over its niche market, but now it faces a number of new and aggressive competitors. It is a competition, there is no doubt, but GoPro will remain the benchmark in the market; it simply is the Rolex of high-quality adventure cameras.
Garmin, Sony, or China’s Qumax may be making gadgets to compete with GoPro, but GoPro will always be the original and it has the capacity to make new and even better products. GoPro, in many ways, has not even begun to show its full potential. Levi’s Jeans, the original denim jean brand, is still around despite a barrage of competition. GoPro is an original, a brand name that defines a product, like “Kleenex” or “Aspirin.” It has lasting brand power.
At $20.00 a share, GoPro stock is a bargain and you won’t have to fight with a George St-Pierre wannabe on Black Friday at the local Wal-Mart to get it. GoPro was born from innovation and the company has all it needs to keep developing new products to persuade video and action fans to drop a few extra bills to get the better camera.
The Bottom Line on GPRO Stock
GoPro knows how to read a wave; better yet, it knows how to ride it and has already launched a new camera system, “Odyssey,” which can capture 360-degree images to be used with virtual reality applications. By the middle of 2016, the company will launch its own GoPro drone with integrated optics, which alone may have customers lining up this New Year’s Eve 2016. (Source: “GoPro Camera Drone Will Be Released in 2016,” PetaPixel, May 28, 2015.) GoPro customers may want to use their cameras to film a new extreme sport: analysts eating humble pie with a side of crow.