GoPro Inc. (GPRO, Financial) was beaten down in 2015 and the story was the same in 2016. The company failed to reward shareholders and the stock lost more than half of its value. Moreover, the company’s revenue has further declined with each passing quarter.
In the most recent quarter, GoPro failed to meet estimates by a wide margin. The third quarter of fiscal 2016 was the fourth successive quarter in which the company reported negative revenue growth.
GoPro is mainly known for manufacturing action cameras, but it also launched a drone called Karma in 2016. The company was extremely dependent on the drone, as it was anticipated to reverse its fortune. Unfortunately, that did not happen because GoPro was forced to recall the drone after numerous reports of it losing power in midair.
The issues with Karma began well before the recall however. First, the company pushed the release date back to October. On top of that, not only did the drone cost $799, but consumers also had to separately purchase Hero 5 Black or Hero Session to accompany it.
As a result of the recall, the company offered a full refund of $800 with Hero Black 5 as a thank you. Fortunately for the company, only 2,500 units were sold so its losses were minimized to around $3 million in revenue, which is still a significant blow.
In addition to its failed product, the company faces tough competition from DJI Innovations. DJI launched its new drone, Mavic Pro, just after Karma. DJI's drone could be considered superior because it included all the essential automation features that were absent in Karma. It also cost less.
Moving ahead, GoPro is facing heavy gross margin pressure. The company’s gross margin currently sits at 40.6%, down from 42.4% in the second quarter. This level appears to be a new normal for the company, which will certainly make it difficult to produce a profit in the long run.
On top of that, almost every smartphone manufacturer is integrating high-quality cameras into their smartphones, creating more problems for GoPro moving forward. The company also has feeble pricing power, meaning gross margin pressure could endure in the imminent years.
Summing up
GoPro lost 50% of its value in 2016. It appears the company will continue to face problems this year due to its inability to deliver efficient products. Moreover, the industry is becoming crowded, further intensifying the competition. For these reasons, investors should avoid the stock until the company successfully delivers a quality product.
Disclosure: No position in the stocks mentioned in this article.
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