Some observers see think GoPro Inc (NASDAQ:GPRO) is an undervalued company in the midst of a turnaround, while others, such as InvestorPlace writer Tom Taulli, hold more bearish views on GoPro stock. I belong to the latter camp.
GoPro released its first-quarter earnings report on April 27, beating expectations on revenue by $10 million and posting a loss a penny better than predicted. But the market was not too impressed: GoPro stock fell 4.2%.
I recommended Fitbit Inc (NYSE:FIT) stock in January, and I still think the potential rewards outweigh the risks … but not true for GoPro stock. Fitbit looks much better than GPRO from a risk/reward standpoint
Both are companies in the wearables sector and both are currently bleeding money. But I would draw two distinctions between them — Fitbit can sustain its cash burn longer and FIT stock trades at a lower multiple than GPRO.
GoPro vs. Fitbit: Cash Burn
GoPro and Fitbit both are unprofitable. Both Fitbit and GoPro were last profitable on an annual basis in 2015. However, Fitbit turned a profit in the third quarter of 2016, one year later than GoPro, which last saw profits on a quarterly basis in the third quarter of 2015.
The two companies also have negative free cash flow. Both were free cash flow positive in 2015, but GoPro’s last quarter in the black ended Dec. 31, 2015. Fitbit’s last quarter with positive free cash flow ended a year later, on Dec. 31, 2016.
For Fitbit, the situation looks much more favorable.
Fitbit lost $60 million in the quarter ended March 31, 2017, with $726 million in cash and short-term investments. At this rate, Fitbit could continue for roughly 12 more quarters before it needs to raise more money.
GoPro, on the other hand, lost $111.15 million in the same quarter, and only has $74.88 million left in cash and short-term investments. This means that it can finance only one more quarter before it has to take on debt. For this reason, Goldman Sachs analyst Simona Jankowski downgraded GoPro stock in March, lowering the price target to $6 a share, down from $8.54 a share now.