Why GPRO Stock Is Up 13% in 5 Days
GoPro Inc (NASDAQ:GPRO) finally found some support last week, for reasons that should surprise no one. The company is doing exactly what analysts thought it should do, and the result was a surge in GPRO stock. It’s just that simple.
Don’t get me wrong, the company is still losing money. GoPro’s year-over-year revenue is down 47.4%, and it made a net loss of $91.77 million for the quarter. (Source: “GoPro Announces Second Quarter 2016 Results,” GoPro Inc web site, July 27, 2016.)
By almost any ratio, it was a bad three months, yet GPRO stock surged after the report was released. There are several reasons for why this happened, and we’ll get to them in a second. But first, consider the timeline which led to this quarterly earnings report.
Over the last three quarters, GoPro’s financials have been drenched in red ink. It used to be a profit-making, blue-sky consumer electronics manufacturer, but then it failed to innovate quickly enough. They failed to keep people interested in their products.
We all know the traditional GoPro cameras. We’ve seen viral videos of a man playing with full-grown lions or daredevils base-jumping off mountains. It’s amazing content that we associate with GoPro because its cameras make it possible.
But that wasn’t a guarantee of growth. Investors were keenly aware of GoPro’s slowing business. What really concerned them was the company’s apparent lack of a response because there was no indication that management could stop the crash in GPRO stock.
The share price fell 79.2% in the last year as investors lost faith in the company’s vision, or lack thereof to be more succinct. That’s the story of how GPRO stock landed in the bargain bin, but it still doesn’t explain how the company spun widening losses as a reason for celebration. Let’s take a closer look.
The Rebound in GPRO Stock
One of the company’s biggest problems was that it was scattered. Great companies, like Apple Inc. and Amazon.com, Inc., know exactly what they’re selling and how to make more money from each of their customers. GoPro hadn’t quite figured that out yet.
There’s a low ceiling on the amount of adventurous souls who want to strap a GoPro onto their heads and jump out of a plane. Once all those people have bought your device, how do you plan to make more money off of them? That was always the central question that GoPro had to answer before investors could turn bullish on GPRO stock.
So they came up with two answers:
1. Build better software to complement the hardware
At a conference earlier this year, CEO Nick Woodman talked about the weaknesses of GoPro’s existing software. He said the company needs to simplify the process for uploading and sharing content. Imagine a device that syncs all your content while charging and then is accessible through the GoPro app…that’s the future, he said. It’s an idea that’s very similar to the “iPhone”/“iTunes” ecosystem, in the sense that the more time people spend on the app, the more engaged they are. It creates a space in which GoPro can sell them a bunch of other services, from editing features to content promotion. This is one reason to be bullish on GPRO stock.
2. New product launches
The upcoming release of GoPro’s first drone, the “Karma”, is another tailwind for GPRO stock. The share price could be buffeted by innovative products that satisfy a consumer demand for newness.
“Last year, we hit a speed bump because we didn’t have enough new products and we didn’t have enough innovation,” Woodman said. “I think our arch is in the opposite direction because the back-half of this year is loaded with the largest new product introduction in the history of GoPro.” (Source: “GoPro pops after topping revenue estimates,” CNBC, July 28, 2016.)
The Bottom Line for GPRO Stock
Analysts have been advocating these ideas for some time now, so it’s nice to see GoPro’s management acting on them. The company learned a hard lesson from the fall of GPRO stock, and investors are taking notice.