Layoffs or Not, GoPro Inc (GPRO) Stock Is Losing an Uphill Battle

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GPRO stock - Layoffs or Not, GoPro Inc (GPRO) Stock Is Losing an Uphill Battle

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Whether it’s good news or bad news is a matter of perspective. If you’re an investor in action camera maker GoPro Inc (NASDAQ:GPRO), Wednesday’s announcement that the company was cutting expenses is a positive in that it boosts the arguable value of GPRO stock.

If you’re one of the 270 people that’s about to lose your job because you’re part of the expenses about to be culled, the news isn’t so fun.

Still, even though news of the GoPro layoffs has catapulted GPRO stock higher to the tune of 11% this week, current and would-be shareholders have to innately know the constant retractions and scripted optimism all have to point somewhere:

I believe that somewhere is an inevitable collapse of the company.

Shrinking Its Way to Success

The bad news came packaged with good news. In a press release posted Wednesday, GoPro confirmed it would be generating between $190 million and $210 million in revenue for the quarter ending this month. Analysts were forecasting an average top line of $200.6 million. Better still, GoPro reported it anticipated posting a full-year GAAP profit.

It’s how it intends to drive that profit that’s proving unpopular with some.

GPRO intends to cut 270 positions, or roughly 17% of its workforce of 1,552 as of the end of last year. That should reduce GoPro’s annual GAAP operating expenses by $585 million, cateress paribus, setting the stage for the swing to GAAP profitability.

GoPro further believes it will achieve that profitability even before the fourth quarter, when the wave of holiday shopping creates a surge in sales. The news leads to an obvious follow-up question:

What’s the adverse impact of cutting loose of 270 workers, who were obviously doing something for the company?

GPRO stock chart

Chief Operating Officer Charles Prober answered the question in a conference call hosted after the announcement was made, saying “We are confident that we are not making those trade-offs. By being more focused we feel we are improving our efficiency and doing fewer things, better.”

As veteran traders can attest — even just veteran traders of GPRO stock — just because something thinks it and says it doesn’t necessarily make it true.

Reality Check

Let’s call a spade a spade. GoPro is fighting an uphill battle, and losing it.

While GoPro is on pace to meet its Q1 revenue estimates, the mid-point of the guidance range is only 9% better than the year-ago first quarter top line of $183.5 million.

Bear in mind that the company’s Hero 5 action camera and the Karma Drone were both launched in the meantime. Between the two, revenue should be considerably stronger than it was in the first quarter of 2015. The bar is set rather low, too, with the launch of the Hero 4 Session materializing in the middle of 2015. By the time the first quarter of 2016 rolled around, demand for anything GoPro made was minimal.

In other words, 9% growth isn’t much, particularly given the hype.

Of course, CEO and co-founder Nick Woodman is still upbeat about the future, commenting, “We have shifted from a revolutionary year to an evolutionary year. It is far less risky to evolve than to be revolutionary.”

He’s probably right, and words themselves are something between poetic and sage-like.

But GoPro doesn’t need clever slogans and motivational speeches right now. It actually needs to take some risks on new products, because “evolutions” of its existing ones aren’t attracting many buyers.

Bottom Line for GPRO Stock

Doomed? No, it’s too soon to start writing the company’s obituary. If nothing else, another technology name like Apple Inc. (NASDAQ:AAPL) or Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) could pony up $1.2 billion and acquire the struggling company just to garner the well-established and well-respected GoPro brand name.

Owning GPRO stock just on the potential for a buyout isn’t a good enough reason, though. Neither is this week’s news that it’s cleaning house to shrink its way to profitability. That’s a clear sign that the company is playing desperate defense, and despite what Prober says, you can’t cut nearly a fifth of your workforce without giving up something.

GPRO stock is still too risky for most investors to own.

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


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/layoffs-or-not-gopro-inc-gpro-stock-is-too-risky-to-own/.

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