GoPro (GPRO, Financial) has rallied strongly on the back of its better-than-expected quarterly results. However, I think the rally will prove to be short lived and investors should use it to exit their positions. There are many reasons why I think GoPro will fall in the long-term, which is why I think investors should capitalize on the recent rally by exiting the stock.
No Long-Term Strategy
Throughout the last year, GoPro’s product unveilings suggested that the company does not have a long-term plan for its cameras. For instance, during the past year, the company launched three cameras including Hero+ LCD, Hero+ and Hero 4 Session, instead of launching flagship cameras in time for the holidays.
Hero+ LCD and Hero+ were the mid-range cameras, whereas Hero 4 Session was the high-end one. The company launched these products to even out sales, as well as to appeal to more consumers.
However, it was found that mid-range cameras cannibalized the company’s higher-end Hero 4 Silver and Black. Moreover, the company was forced to reduce the Hero 4 Session’s price to half of its launch price.
In April, the company terminated its three low to mid-range devices to rationalize its product line and halt the cannibalization. As a result, this clearly signifies that the company’s tactic to appeal to more mainstream consumers has failed.
GoPro VR Failed to Appeal Considerable Viewers
Some glitches came into existence between YouTube and GoPro when YouTube partnered with Yi Technology and IMAX. This was mainly because YouTube believed GoPro’s products were too expensive and did not think it was was to rely on a single camera maker.
After this, GoPro realized that YouTube's clasp of low-priced virtual reality cameras could weaken its brand petition, so the company introduced its own virtual reality site along with an application, GoPro VR, three months ago. However, GoPro’s tactic failed again, as it was not able to attract a large audience from among YouTube users.
As a matter of fact, the chief problem with the company’s strategy is that they all spin around selling more action cameras. The company’s virtual reality rigs are actually just accessories and the Karma Drone will probably be a flying accessory to move more GoPro cameras.
This is possibly the reason why the company is unwilling to introduce a spherical device such as Gear 360, as it would likely cannibalize sales of GoPro’s action cameras, as well as rigs.
Conclusion
GoPro’s lack of a solid long-term strategy makes it a very risky stock to hold after the current rally. The upside at current levels is very limited and the stock will witness strong selling pressure going forward. Thus, I think investors should exit GoPro.
Disclosure: I don't hold a position in any of the stocks mentioned in the article.
