GoPro Inc (NASDAQ:GPRO) had a miserable 2016. Amid a litany of problems — some a result of market forces, others self-inflicted — GPRO stock lost more than 50% of its value during the course of the year, despite starting 2016 at historic lows.
This is a new year, but it’s off to a rocky start with the announcement last night that 270 positions will be eliminated.
But investors love it. GPRO stock is up by double-digits in Thursday’s trade. The bulls see that the company has a new COO, after layoffs and the shuttering of an underperforming division, it’s leaner, and GoPro’s Karma drone is back on shelves.
What are the odds that this is just the beginning of a GoPro turnaround, and that GPRO stock actually makes investors money in 2017?
After 2016, a GoPro Recovery Isn’t Optional
It’s hard to come up with an example of a company that has stumbled so badly and so repeatedly. It seemed as though GPRO could do nothing right in 2016.
You can read the full story here, but as a recap, the company faced rapidly declining sales of its flagship action cameras. The replacement Hero 5’s upgrades included being waterproof — but that feature caused problems in production, leading to constrained supplies heading into the crucial holiday season. The Karma drone it was counting on for a more diverse product line was delayed, then released with a design flaw that led to a recall.
As a result, there were no Karma drones to sell over Christmas and GoPro sported a prominent PR black eye. The year ended with earnings misses, layoffs and a slumping GoPro stock.
Starting off 2017 With a New COO
In January, GoPro announced a new chief operating officer after two years with the position unfilled. GoPro veteran CJ Prober is the new COO. In a Bloomberg profile, Prober says GoPro’s layoffs, elimination of its entertainment division and a flatter organization will eliminate the self-inflicted problems like the Karma drone issue. Teams will work together instead of independently. His mantra is for 2017 is to “do more with less.”
Doing more includes a new version of the flagship Hero camera, improving GoPro’s software to make it more user-friendly, and expanding its line of accessories. The strategy is all about attracting new action camera buyers through a deeper ecosystem, convincing existing GoPro camera owners to upgrade, and selling new accessories to the holdouts who already have a GoPro they’re happy with.
Doing so with less took on new meaning last night when the company announced an additional 270 positions will be eliminated to reduce operating expense.
Action Camera Market Saturation and DJI’s Drone Dominance
Outside of its own missteps, two factors are commonly cited for GPRO’s misery. Any GoPro turnaround is largely contingent on whether the company can overcome these factors.
The first is the consumer drone market. Drone sales continue to grow at a rapid pace, despite their steep cost. In January, NPD Group released a report calling for U.S. sales dollars of drones to increase 177% from 2016 to 2018, with the bulk of those dollars being spent on hobby drones. That would be good news for GPRO — its Karma drone is in that lucrative hobby drone zone — except the company has to convince consumers not to buy DJI. That’s a tall order, considering that the Chinese drone giant dominates the industry to the point that The Verge says its biggest competitor is itself.
When GoPro announced the folding Karma drone, DJI showed off it’s own Mavic Pro folding drone within days, undercut GPRO’s price and beat the Karma drone to store shelves. Gaining a meaningful foothold in the drone market is doable, but it’s going to be an uphill battle.