GoPro Inc’s (NASDAQ:GPRO) former nemesis Ion Worldwide recently filed for bankruptcy protection, but whether that’s good for GPRO stock is still up in the air.
On the one hand, anything that weakens a competitor should help GoPro in the saturated market for action cameras. On the other, watching your main rival go down in flames isn’t very reassuring for the health of the industry.
To be fair, Ion and GPRO aren’t really an apples-to-apples comparison. The former concentrates on clip-on, home security and dashboard cameras, whereas GoPro targets adrenaline junkies like surfers and base jumpers.
But the Ion experience does point to the fact that there’s not much growth left in either category. There are only so many people in the market for any consumer electronic gadget, and once everyone has one, the growth rate has to plateau.
Manufacturers try to regularly juice sales through the upgrade cycle, but most users remain content for some time with the “good enough” gadgets that they’ve already purchased. After all, these are rather pricey toys.
The speed with which Ion’s top line fell apart is jaw dropping, and should serve as a warning to anyone holding GPRO stock. From 2014 to 2015, revenue fell by more than half to $12.4 million. GPRO revenue is already on a downslope. ION shows how fast that can accelerate.
GPRO: No Earnings in Sight
It’s not that cracks have suddenly appeared in the GPRO story. The fissures are old news. What’s alarming is how rapidly they’re widening. Analysts on average expect revenue to fall 50% in the most recent quarter, according to a survey by Thomson Reuters, 20% in the current quarter and about 18% this fiscal year.
Even worse? GPRO stock has a projected long-term “growth” forecast of negative 47% a year. It has no earnings-per-share multiples because it has no trailing or forward earnings. Indeed, last year’s periods of profitability were all too brief.
For the latest quarter, GPRO is forecast to swing to a loss of 58 cents a share from a profit of 35 cents a year ago. Wall Street projects the company to swing to a loss from a year-ago profit in the September quarter, as well. For the full fiscal year, analysts estimate that GPRO will swing to a loss of 93 cents a share from year-ago earnings of 76 cents a share. Fiscal 2017 is targeted for net losses too.
Suffice to say, you’re not valuing GPRO stock on earnings.
Bulls point to a product refresh this holiday shopping season and the company’s expansion into drones. But neither of those initiatives addresses GoPro’s fatal flaw:
It makes cameras.
Whatever bells and whistles GPRO builds into its gadgets, cameras are a commodity, easily replicated and produced for less. The same goes for drones.
True, GPRO has the best brand in the business, but brand equity alone can’t create consumers out of thin air. The market for action cameras is limited — far more limited than the market for smartphones ever was — and it’s pretty much topped out.
There’s just no good bull case to be made on GPRO stock.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
