GoPro (GPRO, Financial) posted a loss in the most recent quarter and issued a warning on future sales. The company's HERO Camera was once deemed disruptive, but it appears to have found its match in Xiaomi's Yi Camera, while more are being launched by various tech giants. And now industry giants HTC and Sony have also launched their own action cameras.
GoPro specializes in the manufacture of action cameras, mostly used in extreme-action videography and part of the connected sports movement.
GoPro has grown over the last few years increasing its workforce to 500 members in 2015, which included the appointment of former Microsoft (MSFT, Financial) executive Tony Bates as president.
Due to a slowdown in top line and increased competition, however, GoPro was forced to reduce its workforce by 100 members or 7% of staff in January.
The company’s stock has experienced a torrid time over the last few quarters. This month, the stock has already dropped by a whopping 28.9%, which brings the total decline for the past 12 months to 83% worth of market value. GoPro’s YTD performance is one of the worst in the market, falling by 50%. This decline has been fueled by disappointing results reported for the most recent quarter.
GoPro's revenues fell by 49.5% during the first quarter of 2016 after the company announced a figure of $183.5 million. Its non-GAAP net income decreased from a profit of $35.6 million in the first quarter 2015 to a loss of $86.7 million in Q1 2016.
In addition, the company expects sales for the year to decrease by 7% to 17%, which compares to 41% year-over-year growth in 2014 and 16% in 2015. Clearly, this illustrates the amount of pressure the company is under to generate profits in the near future. At this rate, it will be hard to net any positive bottom line.
What’s eating GoPro’s top line?
The market is squeezing as more players continue to launch cheaper and even more powerful action cameras. The launch of Xiaomi's Yi Camera appears to be the biggest threat to GoPro's HERO. Xiaomi launched the Yi Action camera last year, a waterproof portable camera to battle GoPro’s series of action cameras.
At the moment, the camera is only available in China and retails at just $64, which means that it is half the cost of the cheapest GoPro Action camera. The entry-level GoPro HERO costs about $130.
The Yi Action Camera has 16 MP and is able to record high definition videos at 60 frames per second. This trumps GoPro HERO, which has 5 MP while video recording is only up to 30 frames per second.
GoPro finds itself in a tough spot in a market that, despite its unquestionable potential, is attracting a lot of players that have massive cash flows on their balance sheets.
Earlier this year, the company announced that its Hero 4 session sales might come out below expectations. It then took a write-down for the price cuts and said its customers found it difficult to edit the video they captured on GoPro cameras with its software.
As a result, the company spent around $105 million on two mobile video editing app companies in order for consumers to be able to easily edit their videos regardless of whether a photo is taken using a smartphone or a GoPro camera. This could pay off in the future especially given the increasing use of smartphone cameras.
Nonetheless, when asked by analysts with regard to last year’s mistakes and the chances of success for the company’s next versions of action cameras, CEO Nick Woodman replied that "we are feeling very good about lessons learned from last year."
Investors will still have to wait and see what happens in the next few quarters and especially during the second half of the year. In addition, while the company continues to create problems of its own, there is still increasing rivalry in the market including products from HTC, Sony (SNE, Financial) and smartphone makers.
Conclusion
In summary, GoPro appears to be becoming a lesser Pro in its game. It needs to deliver the best products to the market given their premium pricing in order to remain competitive.
The company’s stock price has declined to record lows, and this can only be undone by launching a product that is better than what is out in the market and at a competitive price.
This won’t be easy, though, because it might affect its net profit margin, which at the moment has dropped to the negative territory.
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