GoPro Inc (GPRO) stock is getting absolutely crushed Thursday, with shares diving as much as 20% in early trading. Considering the circumstances, it makes a lot of sense.
In a press release from hell, GPRO announced horrible fourth-quarter revenue, cratering margins and a 7% clipping of its workforce. Not exactly what you want to hear from a so-called growth company.
GoPro’s Q4 bar was already lowered after early sales of the Hero 4 Session were extremely disappointing, and it wasn’t even able to match those subdued expectations!
With analysts practically tripping over each other to downgrade GPRO stock and slash price targets, investors must decide: Is the GPRO growth story over for good?
The prognosis isn’t pretty.
Ho-Ho-Horrible Holidays
The most recent chapter of the GPRO story reads like a perverse mashup of horror and tragicomedy: While CEO Nick Woodman was off buying himself a 180-foot yacht, helipad and all, GoPro’s products were being ignored by shoppers around the globe.
The only near-term catalyst for GoPro stock was Q4 earnings, and those are destined to be woefully inadequate.
The gory details of yesterday’s already infamous press release are as follows: The action camera-maker expects revenue to fall to $435 million, well below the $511 million Wall Street expected and miles away from the $500 million to $550 million the company itself previously guided for.
To give some idea of how bad that is, Q4 2014 sales were $633 million, which implies revenue fell more than 40% year-over-year.
And in a short paragraph titled “Reallocation of Resources,” GPRO basically admits that it was, well, allocating resources in a very dumb way. Noting that headcount has grown by 50% annually for the last two years, it announced the 7% reduction in its workforce. You know, in light of the miserable sales and all.
Non-GAAP gross margins for the fourth quarter are expected to fall to somewhere around 35% from 46.8% in Q3.
Once one of the most compelling growth stocks in the market, GPRO stock now trades more than 80% below its 52-week highs, and hit an all-time low in trading on Thursday. That’s largely due to the fact that GoPro simply isn’t a growth stock anymore, and cheaper competitors have elbowed in the action-camera market successfully.
Its goal of transforming into a content-focused company and pioneering virtual reality are merely dreams at the moment, and until we start seeing some solid results, there’s no reason to believe they’ll ever be more than that. As InvestorPlace‘s James Brumley quipped Wednesday, “How many $15,000 virtual reality cameras do you think GoPro can actually sell?”
Judging by the fact that GoPro is having trouble selling the Hero 4 Session at $199 (after being forced to heavily discount the price from $399), I’d say not too many.
Although the stock looks cheap at 10 times forward earnings, remember: It’s cheap for a reason.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
