The dogma among bearish investors is set. GoPro Inc (NASDAQ:GPRO) is a one-trick camera pony, drones were a fad, Christmas numbers due out Feb. 2 will be terrible and the game is over for GPRO stock.
They’ve seen this movie. It’s Groundhog Day.
But despite a recall of its Karma drone and 200 layoffs, GoPro is not giving up. The Karma will be relaunched this month, the Hero cameras sold well and tomorrow will be another day.
GPRO stock still has no debt, its market cap of $1.68 billion isn’t much bigger than its 2015 sales and there was $224 million in cash and short-term securities on the books in September to address its problems. It can still be a solid No.2 against China’s DJI in consumer drones and make money as the market evolves from its consumer focus to a business one.
That’s the hope anyway.
Why GoPro Stock Is a Battlefield Stock
For the quarter ending in December, analysts believe GoPro stock earned about $35 million — 27 cents per share — with revenues of about $572 million. That would leave it about 25% behind last year’s sales, but Christmas cash flow should be positive and the company will survive.
Blackrock, Inc. (NYSE:BLK) is reportedly putting more money into the company, Pacific Crest believes the drone market is viable and some bulls are now predicting GPRO stock will double in 2017.
There is no question that GoPro stock is now a “battlefield” stock, where analysts can hold wildly divergent views. InvestorPlace contributor Jayson Derrick, for instance, is screaming sell, sell sell. While InvestorPlace contributor Joseph Hargett thinks this dead cat can still bounce back.
What’s the real situation?
Is GoPro a Drone Company?
GoPro was not founded to make drones. It was founded to make cameras.
It got into drones as mounts for the cameras, and discovered in 2016 that drones are tough to produce, in quantity, at a competitive price.
The Karma drone had to be recalled in November, and along the way the stock had a precipitous fall from grace, dropping from $17 per share in October to less than $9 per share at the start of 2017. The drones were suddenly losing power and crashing, a major safety risk.
Management acted. It laid-off people, it changed its Christmas marketing plans on a dime and it has delivered a kit called Karma Core, a replacement body, at just $400. The Karma product was originally sold at $800.
InvestorPlace contributor Brian Wu suggests that all of this is noise. He insists it’s the camera, the original GoPro product, that is the key to the company’s future. Only 2,500 Karma drones were sold in the first place, and the Hero5 camera sells in the millions of units, so that’s what GPRO stock investors should be looking at.
Wedbush has done some checking, finding that the Hero5 Session and Hero5 Black cameras sold well at Best Buy Co Inc (NYSE:BBY), not so well at Wal-Mart Stores Inc (NYSE:WMT), and they were usually outside the top five in the action camera category at Amazon.com, Inc. (NASDAQ:AMZN). Despite this, its fourth-quarter earnings estimates are in-line with others, $585 million in revenue and about 24 cents per share in non-GAAP earnings.
The Bottom Line on GPRO Stock
The bottom line here is that GoPro management is engineering a difficult turn, from following consumer fads with cool cameras and drones, to creating business markets that don’t yet exist, but will.
The drone market should be worth over $21 billion in five years, with commercial drones and sensors, like those GPRO makes, leading the way forward. Getting even a small share in the lower-end of that market should mean a sustainable business.
Now all GoPro must do is deliver a drone that can meet that need. Whether it can, whether it will, remains a question the company must answer. You can speculate on that, or the possibility it gets acquired, but just know you’re speculating.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN.
