GoPro (GPRO, Financial) was a volatile stock in 2015, and the story is the same this year as the company has lost approximately 50% of its value year to date. Throughout the past four quarters, the company’s revenue has been declining at an average of 42% per quarter.
In the most recent quarter, the company shared earnings per share of negative 60 cents, missing analyst estimates by 26 cents. On the other hand, the company’s revenue came in at $240.57 million, $72.16 million less than the consensus estimates and signifying a drop of almost 40% year over year.
On top of declining revenue, the company’s operating expenses are also escalating at a swift pace. Moreover, the company reported a net loss of $303 million and, keeping in mind the company’s guidance, it looks like 2017 will be another unprofitable year for GoPro.
A few months ago, GoPro was basically a pure action-camera manufacturer until the company launched its new Karma drone last month. The primary reason GoPro decided to enter the drone market is due to increased competition, which led to gradual decline in its action-camera business.
Moreover, the company tried selling less expensive devices for mainstream consumers in 2015, but the majority of consumers avoided buying a separate camera and considered their smartphones as an alternative. As a result, the company terminated the production of its low-end models and publicized that the new Hero5 camera, as well as the Karma drone, would help the company return to profitability.
However, the company failed to keep its promise. Initially, Karma was intended to launch in the first half of 2016, but the company delayed the launch until October. Even after delaying the launch of Karma, it came up short on several significant autonomous features and was priced at $800.
Moving onward, GoPro recently announced a recall of its Karma drone, as the device loses power in the middle of flight. The good thing is that the company sold just 2,500 units of the drone. However, Karma is the first drone offered by GoPro and the recall will certainly leave a bad impression on consumers.
Currently, the company is proposing a full refund and has halted production of Karma until they can determine what the problem is and fix it before offering replacement units.
Summing up
GoPro is down 89% from its all-time high. Since 2015, GoPro has been facing huge problems and it looks like they are far from over. The company is putting in a lot of effort to diversify its revenue stream, but the introduction of new products such as drones and virtual reality rigs point out that it is still establishing its overall business around its camera.
To reverse its fortune, it is necessary for the company to diversify its business away from action cameras. For the time being, investors should avoid the stock.
Disclosure: No position in the stock in this article.
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