By most accounts, GoPro Inc (NASDAQ:GPRO) stock should be in the red today. The company is still fighting an expense battle, just yesterday committing an additional $7 million just to help fund the shutdown of its media division.
Meanwhile, GoPro still has a black eye from its Karma drone debacle — the aerial drone was recalled just two weeks after it debuted. Never even mind the persistent losses the company has been booking as a result of waning demand.
And yet, there it is — GPRO stock popped a relatively solid 5% on Thursday while the broad market is in the red. What gives? A rumor has been interpreted as a reality by a few too many optimistic owners of GPRO stock.
Believe It or Not
One would think with the echoes of “fake news” alarms still ringing from this year’s Presidential election process that the average investor would be a little more discriminating. One would particularly expect such discrimination when the rumors had only surfaced on the web’s message boards. GPRO stock holders, however, have chosen to presume the best despite a decided lack of credibility to the rumors.
And that rumor is, GoPro is about to be acquired.
CNA Finance so far has been the only source to report the idea, and even it makes it clear that neither the company nor any legitimate news outlet has confirmed it. Rather, CNA Finance simply pointed out there’s an inordinate amount of chatter surrounding for the possibility at all of the web’s usual digital water coolers.
There is a nuance, though, that makes these rumors slightly more credible — a specific buyer and a specific acquisition price were named. The buzz is, KKR will be paying $14 per share of GPRO stock. Most acquisition rumors don’t come packaged with such explicit details unless there’s something to them. Yet …
There is no “textbook” acquisition rumor. They’re all different, and they all generally change in context and believability over time. See, the same traders that would nefariously create a false rumor to make a quick buck have also learned that details make any lie more believable. In this case, KKR’s interest and willingness to a healthy, but not implausible, price makes the rumor quite convincing.
That still doesn’t necessarily make it true, however.
Bottom Line for GPRO Stock
Never say never. GoPro may well be acquired in the near future, by KKR or another organization. With a market cap of only $1.3 billion, most would-be buyers can afford it.
The question is, why would somebody want it? It can’t be its intellectual property portfolio; there’s nothing all that proprietary about action cameras. Indeed, a plethora of competitors have surfaced that look, feel and perform just as well as the company’s Hero line of cameras does.
The Karma drone? Doubtful. DJI has fared better with its line of drones than GPRO has with its first entry into the fray.
GoPro’s business itself? No, that’s a sinking ship, and would likely become more of a liability than an asset; drones and action cameras are now a commodity.
The most compelling aspect of GPRO stock to a would-be buyer is the GoPro name/brand, but even that may not be worth $1.3 billion now.
Aside from the Karma gaffe, the implosion of GPRO stock itself has trickled over to the consumer side of the aisle. Specifically, with users not entirely sure if the GoPro company we know and love today is even going to be around a year from now, action camera fans are leery of buying a device that may not be supported or updated in any way at all in the foreseeable future. An acquisition would almost certainly mark such a shift, putting the brand back into a “starting over” position. Consumers don’t often overlook such deals.
In other words, when one looks past all the euphoria that surrounding such a deal, what they find is a company, a brand and a stock with a lot of baggage. A buyout seems an unlikely outcome until the company’s a heck of a lot cheaper than it is right now.
Any buyer has to know it would be taking on a big repositioning project, and that buyer certainly isn’t going to pay a premium for the privilege of taking on a headache.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
