GoPro Inc. (GPRO, Financial) had a rough 2017 as the stock was down 13%. Also, the stock is off to an awful start heading into 2018 as it is down nearly 27% year to date. The action-camera maker operates in a brutally competitive industry and faces fierce competition from big camera manufacturers as well as smartphone manufacturers.
Nowadays, smartphone manufacturers are primarily focusing on improving their device’s camera. Also, the new high-end devices are IP68 water-proof and dust resistant. The continuously advancing camera quality of smartphones will have an adverse on GoPro in future as it will obstruct the ability of action-camera maker to drive significant revenue growth.
Shares of GoPro tumbled slightly more than 27% in January. The action-camera maker said that is laying off more than 250 workers which appears to be the main reason behind that steep drop last month. Apart from this, the company also decided to exit drone market as it is tremendously competitive.
In addition, GoPro reported disappointing fourth-quarter results last month. For the holiday quarter, the action-camera maker shared a net loss of 30 cents, missing the analyst’s estimate by 19 cents. Its revenue came in at $335 million, again missing the consensus by $5.2 million. Most significantly, that figure represents a drop of almost 38% year over year.
The company’s revenue growth turned negative in the last quarter after delivering positive revenue over the past four quarters.
Although the company reduced its product prices in December last year, it was not enough to turn its fate around. Despite the reduction in rates, the units shipped by GoPro declined a whopping 40.5% in the holiday quarter which is highly disappointing. Also, the company’s new spherical camera, Fusion, did not manage to boost its sales in the quarter.
Moving ahead, the action-camera maker is now aggressively focusing on enhancing its cloud offerings. The company launched its GoPro Plus cloud-based service in 2016, but it failed to make a meaningful impact on its earnings so far. Recently, the company improved its GoPro Plus offering which may be appealing, but again it will not be enough to help find its way back into the green.
GoPro CEO Nick Woodman recently said that the upcoming cameras in the other half of this year should help enhance margin. Investors, however, should not forget that GoPro has a proven track record of over-promising and under-delivering.
On the other hand, Morgan Stanley recently downgraded its rating on GoPro to underweight with a price target of $5 per share. The financial services firm said that the action-camera maker’s adventure camera are not improving swiftly to keep up with market expectations. On top of that, JPMorgan’s analyst Paul Coster also lowers its rating from overweight to neutral.
Summing up
Although GoPro has lost almost 94% of its overall value since reaching its all-time high in 2014, it will continue experiencing more problems in the years ahead. Not only GoPro faces tough competition from other players in the industry, but it is also hampered by consistent lack of proper business management, increasing expansion as well as Research and Development (R&D) expenses, and decreasing brand popularity.
All the recent news including GoPro’s decision to layoff workers, substantial price discounting, as well as missing analyst’s targets throws light on a fact that the action-camera maker is rapidly losing its significance in the market.
The stock currently trades at its all-time low, and it will likely continue moving downward in the forthcoming years. The company’s revenue has continued to fall, and its management has failed to diversify its business which is apparently not a good sign for investors.
As a result, I would recommend shareholders to stay away from GoPro as it is not out of troubled waters yet.
Disclosure: No positions in the stocks mentioned in this article.
