Over the last month, shares of action camera maker GoPro Inc (NASDAQ:GPRO) have gained nearly 10%. That’s an impressive feat considering that investors have been overwhelmingly negative about the firm over the past year. The firm’s decision to cut an additional 270 jobs coupled with the release of a new camera buy-back program have lifted the sentiment surrounding GPRO stock, but investors would be wise not to chase the rally.
As it currently stands, GoPro stock is a sinking ship and the firm’s financials are shaky at best.
During the first quarter of 2017, the company is only expected to eek out a modest 9% revenue growth despite releasing several new and updated products, including virtual reality rigs and a new Karma drone.
With all of its new flashy products up for sale, single-digit revenue growth doesn’t really cut it.
Job Cuts Don’t Cut It for GoPro Stock
Not only that, but most of the 10% rise in GPRO stock over the last month was due to investors cheering the firm’s cost cutting efforts. However, that enthusiasm looks overdone when you take into account the company’s revenue decline.
The $200 million that GoPro will save with its belt-tightening measures may make it possible for the firm to break even this year, but without meaningful sales growth, that eased financial pressure will be short-lived.
That brings us to the other reason investors have changed their tune regarding GPRO stock — the firm’s camera buyback scheme. Last week, the company announced a new program in which customers can trade in any old GoPro camera and receive a $100 or $50 discount to buy a Hero5 Black or Hero5 Session device respectively. I believe the program is a step in the right direction for GPRO stock, but again, I’d say the market’s optimism is overdone.
First of all, GoPro owners are likely well aware that they could probably receive a far greater sum by selling their devices on a secondhand website like eBay or Craig’s List. Assuming this is true, it would appear that the company’s users aren’t upgrading to new devices because they don’t believe it’s worth it, either because the features on their current device are enough or because the price tag is simply too high.
Secondly, the only way the buyback program can be successful short-term is if people buying the new cameras get hooked on the GoPro ecosystem and buy-in to the company’s cloud service and software side. It’s unclear whether that will happen, even with the new cameras in more customers’ hands.
Bottom Line on GPRO Stock
There is also a question about timing — how long can the company keep this buyback program up? If we are talking about a one-time offer, the effects on the company’s future will be minimal. However, if this is going to be a regular offering for GPRO customers, it could be a way for the firm to get people interested in upgrading their devices when new models become available.
Overall, GoPro stock is far too risky to consider adding to a long-term portfolio. The company is essentially clinging onto its respected brand name, but that doesn’t make for a good future strategy. While its belt-tightening measures and camera buyback scheme are certainly good news, they don’t have enough meat behind them to carry GPRO stock much further.
Instead of joining in on the GoPro stock party, investors would be wise to wait to see whether the company will make the most of these opportunities. The firm’s future is still looking very murky and management hasn’t given investors any indication of a concrete plan for future growth.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
