While the latest earnings report for GoPro Inc (NASDAQ:GPRO) was encouraging, it was not enough to put GPRO stock into gear. Then again, the company faces some tough challenges that are likely to persist for quite some time.
First of all, the competitive environment for its action cameras continues to get more intense.
Just a few of its fierce rivals include Canon (NYSE:CAJ), Nikon Corp (ADR) (OTCMKTS:NINOY), Olympus Corp (ADR) (OTCMKTS:OCPNY), Sony Corp (ADR) (NYSE:SNE) and Garmin Ltd. (NASDAQ:GRMN).
But of course, smartphones are also taking away market share since these devices are getting much more sophisticated. For example, during WWDC, Apple Inc. (NASDAQ:AAPL) announced its ARKit for iOS 11, which allows for augmented reality (AR) features. Furthermore, with the upcoming launch of the iPhone 8, there should be some other whiz-bang features.
It also not encouraging for GPRO stock that the company is essentially focused on an industry that is a niche. How many people really need a camera for their sports activities?
Now it’s true that GoPro has taken steps to diversify its product offerings, such as with the Karma drone. But even this has come under lots of pressure lately as seen with the recent launch of the DJI Spark, which has a competitive price tag of $499. It’s a folding drone that has a smaller form factor and is more portable — that is, when compared to the Karma.
The max speed is 31 MHP and the range of 1.2 miles. What’s more, you can control the drone with either an Apple or Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) device. There’s also a new app, called DJI Go, that allows for video editing and sharing.
According to InvestorPlace.com’s Brad Moon:
“The DJI Spark puts the Chinese drone maker in a position to dominate not only the high end of the drone market, but also the middle as well — making it even more difficult for a product like the GoPro Karma to succeed.”
OK, but what about GPRO’s moves into virtual reality (VR)? Might this be a catalyst? Well, the company’s offering, which is called GoPro Fusion, is not expected to hit the markets until later in the year — and it will be only for “limited” commercial release. In the meantime, there is definitely no shortage of VR products coming onto the market, such as from Facebook Inc (NASDAQ:FB) and Garmin.
The Real Problem for GPRO Stock
Given all this, it should be no surprise that GPRO stock has been such a major loser. But unfortunately, there is something else that could drive the valuation even lower — that is, the company’s problems with product development.
Here are some of the things to keep in mind:
- During the holiday season, GPRO’s manufacturing mistakes led to the delay in the Hero5 Black camera.
- There was the recall of the Karma. Yes, the device was falling out of the sky!
- GoPro had to shutdown its entertainment division. Not long before this, the company’s management lauded this business as a key to growth.
Oh, and when it comes to new devices, the features are often underwhelming. No doubt, this has made it much easier for competitors to gain traction.
But the product development challenges are likely to not to go away. Actually, they will probably get even worse. Note that the company has been engaged in an aggressive cost-cutting campaign, which has resulted in steep reductions in the headcount and the paring back of R&D. Let’s face it, whenever there is tremendous disruption in an organization, it’s tough for employees to be motivated.
Bottom Line on GPRO Stock
So if the deterioration continues, the brand will lose its premium value. It’s what happened to other device makers like BlackBerry Ltd (NASDAQ:BBRY) and Nokia Oyj (ADR) (NYSE:NOK). By the way, these companies ultimately outsourced their core businesses!
But given the meager financial resources of GoPro, this is not really an option for the company. It must come up with products that gin up the attention of consumers. But so far, the company has been plodding and unimaginative — making the situation very tough for GPRO stock holders.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is the author of various books, including All About Commodities, All About Short Selling and High-Profit IPO Strategies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
