Is the Party Over for GPRO stock?
GoPro Inc (NASDAQ:GPRO) will be fighting its toughest battle now. The company’s next moves will have to convince investors that GoPro stock deserves their confidence.
The latest GPRO stock earnings report, delivered last week, elicited many emotions and reactions, but confidence was not one of them. Still, there was trust, and that’s an important distinction. Yes, GoPro had a bad quarter but, since a few months ago, the company has changed and the outlook for GoPro stock is favorable in 2017.
A pig with makeup doesn’t look better. There’s no making up for the fact that GoPro stock has returned to its lowest levels of 2016. It fell to just over $10.00 per share. But, the better—if not wholly good—news is that the drop in GPRO stock was not significant in the context of its performance this year.
Indeed, on the U.S. election day, when markets tend to be cautious, GoPro stock picked up over 2.5%, just about gaining half of what it lost on Friday after it posted earnings, trading at near the $11.00 mark.
To review those apparently shocking results, GoPro saw an almost-40% contraction in sales in the third quarter. This, as you would expect, was the item that put heavy pressure on GPRO stock. Founder and CEO Nick Woodman wants to remain optimistic. Not everyone shares his favorable outlook, but he has a point and it’s not without merit.
GoPro Has Invented a Market and It’s Not Going Away
It’s hot to go pro at the end of the year. You see, there are many GoPro-kind of people in the world, more than ever. They are the kind of people who love to play sports or walk around with small cameras, filming the action. GoPro revolutionized the market by making a special kind of camera that appeals to this kind of user. The fact remains that, as Apple Inc. (NASDAQ:AAPL) has noted, the market saturates eventually. Third-quarter revenue was $240.5 million. It’s still good, even if it’s not the $400.0 million of last year.
There are three possible explanations at first glance. The first is that GoPro has met a new formidable competitor. The second is that GoPro might have suffered some production problems. The third is that many buyers have been wanting to buy the “Karma” drone and camera package, delaying their purchase until now. The Karma was released just a few weeks ago.
It turns out that the reason is a combination of all three factors, but mostly the first two. Nick Woodman pointed out that production problems were to blame for the company’s problems, hence the near-collapse of GPRO stock. The CEO said the “Hero 5” camera and the Karma drone had enough manufacturing problems to force their delay on the market. Had they come out on time, GoPro’s sales could have been much higher and close to last year’s stellar performance. The competition component is more complex, but no less compelling.
GoPro Sales Have Dropped, But They Could Reach New Records in 2017
GoPro’s sales took off with an afterburner at the beginning. The product was unique. It was truly a game changer, and it crushed the competition. Now, other brands offer similar products and sometimes even at a lower price. More competition, therefore, means GoPro sells fewer cameras and GPRO stock falls. But GoPro isn’t the first, and certainly won’t be the last, company to experience competition.
GoPro remains the reference for action camera makers. There’s no question it must innovate and continue to churn out new products. But the company has something its competitors do not, an honest-to-goodness brand name that competitors and customers covet. GoPro is that unique type of company, whose name defines the product it represents. It’s like “Kleenex” or “Band-Aid.”
This means GPRO stock should survive inevitable down periods.
The good news is that investors won’t have to test the power of the GoPro brand, at least not without backup. That backup comes in the company’s new products. Yes, they’re late, but they’re still here in time to be a hit for the holiday shopping season. GoPro is so confident of sales that it even had the insolence to challenge sales margins with such retail giants as Amazon.com, Inc. (NASDAQ:AMZN).
The script for GoPro stock in 2017 should see the more optimistic kind of action. According to Nick Woodman, fourth-quarter sales could reach $625.0 million. That would be a record.
GoPro stock investors might be shocked by that number, and so they should, since GoPro has exceeded $400.0 million in quarterly revenues only four times since 2013. But thanks to the Karma, the average price of GoPro’s products has increased considerably, so the revenue target seems legitimate, as does a bullish outlook for GPRO stock.
The best part is that the new drone will appeal to amateur pilots as well as amateur (or even professional) filmmakers. Its price is certainly within a band that would allow many sons and daughters to find one under the Christmas tree. Conversely, many dads and moms could also be inducted into the GoPro club.
Best of all, GoPro does not have to compete against the Alphabet Inc (NASDAQ:GOOG) “Google” phone, the Apple “iPhone,” or the next Samsung Electronics Co Ltd “Galaxy” smartphone. All of these are great products with excellent cameras, but they’re not action cameras with a drone.