I have been bearish on GoPro (GPRO, Financial) for quite some time and have recommended investor to short the stock when it was trading at $25. Despite the fact that GoPro has lost about 60% of its value since my initial short recommendation, I still think the stock has more room to fall. While investors can cover their short positions and book profits, I would advise against buying GoPro as it is likely headed lower.
GoPro is not the only option for Google
Google formerly partnered with GoPro to use its 16-camera rig, Odyssey to create 360 degree videos, but Google recently detailed that it has also partnered with other small camera makers. Google explained that it has partnered with small camera makers because it cannot simply rely on GoPro’s expensive cameras.
Google's choice to partner with other camera manufacturers destabilizes GoPro's efforts to establish itself as a market frontrunner in the virtual reality segment. The company was already aware that such things will happen in the future; therefore it launched its own website for virtual reality videos titled as GoPro VR.
GoPro’s management believes that GoPro VR app will help the company to grasp a leading position in the VR market. The company will face a solid competition from Google, however, as Google has offered opportunities to other camera manufacturers regarding its Jump and YouTube 360 platform. Due to this, the company could even lose its edge as a virtual reality leader on YouTube.
Moreover, Xiaomi is also about to launch its own less expensive high-end rigs which will be manufactured by using the same hardware that are being used in GoPro’s superior devices. This will certainly create many problems for GoPro.
What if virtual reality fails?
If virtual reality fails to appeal to expected number of consumers, it will result in huge loss, as many companies are counting on the virtual reality market. Facebook will not be able to gain $2 billion back it has spent on Oculus Rift if it does not sell considerable amount of VR headsets. However, it will not have adverse impact on Facebook, as a major portion of revenue comes from the advertising segment.
But the same is not the case for comparatively small companies like GoPro that do not have a diversified businesses. GoPro is aggressively dependent on sales of virtual reality rigs and a possible spherical action camera to improve its falling sales, but the company should keep in mind that total available market for VR capture devices is much smaller than it projected. Hence the chances of it failing are quite high.
Conclusion
GoPro’s non-diversified business model is the primary reason why investors should stay away from the stock. Ever since its IPO, GoPro has put all its eggs in one basket and that strategy has proven to be disastrous as of now. And there’s no reason to believe that trend will change in the future.
Disclosure: The author doesn’t have any position in the stock mentioned in the article.
