GoPro Inc (NASDAQ:GPRO) is lumped in regularly with Fitbit Inc (NYSE:FIT) by lazy analysts doing stories on the “fallen angels” of tech hardware.
The situations are quite different. Wearables are switching from products sold as a lifestyle choice to items people use because their health coverage depends on it. That can be a compelling business model.
GoPro stock, by contrast, needs to make its business case. The hobbyist market is tapped out. The entertainment market was a non-starter. Drones are more complex than fitness trackers. GoPro is recalling 2,500 Karma drones, a half-month after their release. And now, the embattled company is laying off another round of employees.
Unlike Fitbit, GoPro stock has suffered from decreasing margins for years. And while its operating cash flow is positive, the company needs steady investment to keep up with its competition in America and globally.
GoPro Stock: An Industrial Future
In my latest novel, I accidentally showed GoPro’s future in a scene where a rancher needs to repair a drone being used to track cattle and fence lines. If GoPro stock or its competitors have a future, it’s in industry.
Drones are an industrial product. Drone software and imaging are quickly moving to the cloud, not only for use in agriculture but in mining, engineering and real estate. Different types of images, like lidar and sonar, are creating new markets. The business of using drones is now expected to be worth $127 billion by 2020.
While drones do have military uses, most now involve intelligence gathering, not open warfare, because of power problems. The heavier the drone, the more power it needs, but power adds weight, and weight reduces a drone’s range.
The problem for GoPro is that the new opportunities are niche businesses. Each vertical must be addressed separately, with a complete solution involving hardware, software, cameras, communication storage and image analysis.
There are still white papers predicting great things, but each opportunity also brings with it specific challenges.
What’s the Strategy, GoPro?
This is GoPro’s dilemma. It needs to make strategic decisions, about which industries to go after, and which opportunities to forego. It needs to invest heavily in the verticals it targets and stop trying to just be “a drone company,” but a solutions outfit.
Right now, GoPro’s product set is very horizontal. Its GoPro Studio and GoPro App are fine for consumers or hobbyists, but those markets are played out and the products are not adequate for most of these new industrial markets.
CEO Nicholas Woodman has been with the company since its beginning. He came out of gaming, and developed the company’s first big product, the HERO camera, for sports and entertainment. President Andrew Bates came from Microsoft Corporation (NASDAQ:MSFT) and his career shows experience with business markets.
But before buying GoPro stock, I want to know, specifically, that Bates has control of the strategy and that the company knows what its strategy is.
Will Someone Please Buy GoPro
Absent that, GoPro would mainly be attractive as a takeover target. The 45% fall in its stock price this year has brought its market cap below its sales, and institutions own enough of the company to force a takeover.
The question is who would buy it? Industrial electronics companies are strengthening, so a company like Honeywell International Inc. (NYSE:HON), Johnson Controls International plc (NYSE:JCI) or even Siemens AG (OTCMKTS:SIEGY) could pick it up for the equivalent of seat cushion money, refocusing the company on the specific markets they serve.
Integration with its business software might even make this a fit for Microsoft, which is now seeking to use hardware to control software markets.
Absent a sensible strategy or a takeout, I don’t see a future for GoPro stock. It doesn’t need your money, it needs a clue.
Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT.
