GoPro Inc (NASDAQ:GPRO), the action camera company, is what we at InvestorPlace call a no-no zone. The camera itself was a fad. The company’s efforts to load the camera into a drone are doomed, and so it seems is GPRO stock.
GoPro itself is mainly an assembly, software and marketing company, a brand among daredevils, well-known enough to be a verb to 20-somethings, for adventure photography.
GPRO has been burning cash steadily for two years. It did well in 2015 — a total of $150 million in operating cash flow — and it has wisely paid off its debt. It does have some year-over-year sales growth — $218.61 million in revenue for the March quarter against $183.54 million for the same quarter in 2016 — but the 2015 revenue figure of $1.6 billion is a long time ago, and unobtainable now.
Worse for GoPro stock, due to the nature of technology in the 2010s, it’s not worth buying.
GPRO: Cheaper in China
Hardware today is mostly a function of buying parts in China and shipping the results to the West. But if you can do that there, why do you need an American company?
This is the case for drones, where a well-run Chinese company has quickly achieved global dominance. That company is DJI, run by a young CEO named Frank Wang Tao. He sports golf caps to hide a receding hairline and is worth $3.6 billion. He started DJI in his Hong Kong dorm room in 2006, and now runs it out of Shenzhen. The company is worth $10 billion.
Gartner Group reports that drones are a $6 billion market, but growth is slowing. Hobbyist drones, the area where GoPro competes, should be worth $2.8 billion, but DJI has two-thirds of that market. The company cuts prices aggressively, and it has 1,500 people just in research and development. It also has the Apple Inc. (NASDAQ:AAPL) stores.
In other words, before GoPro’s Karma was a dream in CEO Nick Woodman’s eye, DJI had the market sewn-up.
GoPro Stock: Days of Future Passed
Thus, our writers warn readers away from GPRO stock. It lives in a limited niche and its chosen growth market is closed off.
InvestorPlace contributor Ryan Fuhrmann calls it “a real buzzkill,” with losses, dwindling cash and no foreseeable profits. The company’s raise of $175 million in convertible notes means it can keep going for a while, but it’s not going anywhere.
Lucas Hahn prefers Fitbit Inc (NYSE:FIT) to GoPro stock. To me that’s like preferring cremation to an open casket funeral, a simple matter of taste that means little to the corpse.
Meanwhile, Tom Taulli called GPRO stock “a slow-moving train wreck” in April and he did not change his mind after it got a slight pop last month. GoPro is a niche company that has had to recall both its high-end cameras and drones, he writes, and the May pop was purely technical in nature. In fact, the stock has settled down at roughly $7.8 per share, well below its May high.
Bottom Line on GPRO Stock
The only hope I can see for the company are in some numbers that are a footnote in Fuhrmann’s story.
The brand is worth something. The company has 12.7 million Instagram followers, 35 million Facebook video views and it was recently ranked the sixth coolest brand among teenagers, from 122 in a study commissioned by Google.
To me this means that, in theory, a consumer electronics company like Apple could buy GoPro for close to its current $1.2 billion value, kick DJI out of its sales channels and bolt the cameras and/or drones onto an existing product line.
But that is more of a hope than a plan. Leave GPRO stock alone.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.
