Is GoPro Inc (GPRO) a Drone Stock Now?

Advertisement

Shares in GoPro Inc (NASDAQ:GPRO) received a nice lift after the debut of its first-ever drone, but GoPro stock is not suddenly a “drone play.”

GoPro Inc GPRO Karma Drone and Hero 5

Source: GoPro

And that’s a good thing.

Drones have the same problem that action cameras do: There’s no moat. As fine as GPRO’s gadgets might be, they’re competing in a market of limited size against waves of larger competitors (such as DJI) that can undercut it on price — and sometimes performance too.

Besides, although GoPro stock has been on a tear since mid-summer in anticipation of new products, the refresh of its Hero line of action cameras gets the bulk of the credit.

Recall that last year GPRO had a flop on its hands and had to resort to discounting to clear inventory. Shares tumbled into fall and stayed there, sitting on a 52-week loss of more than 50%.

With shares up by a third in three months, investors are betting that GRPO won’t suffer the same fate this year. So far, the early reviews of the latest additions to the Hero 5 family of action cameras are strong. The early success of these new cameras goes long way toward justifying the recent strength in GoPro stock.

The new Karma drone? Maybe not so much.

GPRO Will Learn that Brand Extension is Hard

The idea that GPRO could reverse its fortunes by entering into the drone category was always suspect. With action cameras, at least GoPro had a first-mover advantage. That’s not the case with drones. Sure, the drone market is fragmented, but that’s both an opportunity and an obstacle. And don’t underestimate the difficulties of brand extension.

Besides, the early takes on GoPro’s Karma drone are that it’s a good enough piece of  technology, but no better. If the company was hoping for a breakthrough on the price-vs-performance continuum, it’s had only mixed success.

Analysts at Piper Jaffray wrote in a note to clients:

“From a battery perspective, the Karma has 18 minutes (of run time), which compares to the peer average of 24 minutes. Additionally, we averaged the current price point of Karma’s peers (with integrated cameras) and found average selling prices at $705 (vs. $1,000 and $1,100 for Karma).”

Even analysts with a more favorable view of the Karma drone worry about the size of the potential market.

Bottom Line on GoPro Stock

The takeaway from GoPro’s latest product launch is that it looks well-positioned to have a strong holiday selling season because of its Hero line refresh. New customers and upgraders are expected to juice revenue heading into the end of the year.

But that only puts GRPO back to where it was before sentiment on the name began to sour. If investors think Karma is going to swoop in and make GoPro a category killer in the drone market, think again.

As much as the company needs to expand outside of its core category, GoPro stock is a bet on the Hero line of action cameras. That’s what will drive revenue, earnings and — by extension — the share price.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2016/09/gopro-stock-gpro-karma-drone-play/.

©2024 InvestorPlace Media, LLC