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Harsh Jain
Harsh Jain
Articles (219) 

Don't Be Fooled by GoPro's Temporary Performance

The company's new Fusion 360 camera will face fierce competition from cheaper rivals

November 20, 2017 | About:

After disappointing shareholders over the past two years, GoPro Inc. (NASDAQ:GPRO) has managed to hold itself together this year as it is down just 3% year to date. The company's revenue tumbled at a steady rate last year, but it managed to return to revenue growth this year.

GoPro reported smashing third-quarter results on Nov. 1. For the quarter, the action-camera maker posted earnings per share of 15 cents, exceeding estimates by 13 cents. Revenue came in at nearly $330 million, beating the consensus by $16.7 million and increasing 37.1% year over year.

Despite reporting strong quarterly numbers, shares of GoPro dropped more than 10% in after-hours trading on weak fourth-quarter guidance.

The company expects fourth-quarter earnings in the range of 37 cents to 47 cents per share on $470 million in revenue. In comparison, analysts predict earnings per share of 57 cents and revenue of $521 million.

Moving ahead, GoPro recently began shipping its new 360-degree virtual reality camera called “Fusion,” which is priced at $699. Although the company has made a smart move by launching a VR-focused camera, it is not certain it will generate meaningful revenue for the company going forward.

Moreover, the Fusion 360’s rivals, such as Nikon’s KeyMission 360, are already out on the market. In addition, there are comparable cameras available for a lower price.

Previously, Facebook (NASDAQ:FB) launched its own high-end virtual reality headset, called Oculus Rift, to gain an early lead in the virtual reality market. The headset, however, failed to meet expectations and the social media giant was forced to reduce the price. This suggests the virtual reality market might become huge in the coming years, but it is not living up to the hype currently.

The most important thing to notice in the case of GoPro is its cameras primarily target adventure-oriented customers. Its products are not suitable for mainstream, everyday use, which appears to be one of the factors preventing the stock from moving upward.

However, if GoPro plans to launch a new product for mainstream users, it will face fierce competition as cameras installed in smartphones are highly efficient.

Summing up

Shares of GoPro have been unstable as the company continues cutting costs as part of its strategy to return to profitability. The company is aggressively trying to diversify itself away from its core wearable camera products, but is unable to find success. It launched a new drone last year, but failed to gain a strong foothold in that market.

The company spent massively on Karma, and now same is the case with Fusion 360. Like Karma, if GoPro’s Fusion fails to meet expectations and does not generate enough revenue, it will further hurt the company’s financial position.

The action-camera maker guided a weak fourth quarter, which is not a good sign for investors as it is usually a solid one. In all, GoPro is a camera company that doesn’t have enough room to expand its footprint, suggesting its long-term growth is limited. As a result, investors should avoid the stock as its future looks uncertain.

Disclosure: No positions in the stock mentioned in this article.

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