If investors in GoPro Inc (GPRO) think this year’s release of a drone and new camera are going to save GPRO stock, they’re fooling themselves.
GPRO’s problems have nothing to do with the quality of its hardware, at least as knowledgeable reviewers see it. Indeed, by all accounts, GoPro makes some of the best — maybe THE best — gadgets in its product sector.
The issue is that GPRO has no competitive advantage. It displays a fundamental lack of innovation in the marriage of hardware and software. Heck, supplier Ambarella (AMBA) has been a key pillar of its success.
The bottom line is there’s no moat to keep others from entering the market with cheaper gear or better designs and ideas.
Take away the brand and the marketing, and what you’re left with is a company that makes cameras. Bulls take issue with that characterization, but even its chief executive is struggling to come to terms with the reality that GPRO makes a rather prosaic product.
During a quarterly earnings conference call with analysts, CEO Nick Woodman said that GoPro isn’t a camera company. Rather, it’s the “world’s leading activity capture company.”
That is as lame a piece of corporate speak as you will ever hear.
Q: What does GPRO do?
A: It captures activities.
Q: With what?
It didn’t take long for the equity market to figure this out. About four months after its June 2014 initial public offering, GoPro stock hit its all-time closing high of almost $94 a share. Today, GPRO stock goes for not quite $13.
That’s a decline of more than 85%, and the selling started long before GoPro had a flop with its Hero 4 action camera last year. The drop is the culmination of merchandising missteps and increasing pressure from rivals.
GPRO Stock Is a Dead End
Bulls are pinning their hopes on two products releases targeted for later this year. GoPro’s first drone — irritatingly named GoPro Karma — and the Hero 5. Sure, both gadgets could be hits that give a temporary boost to GPRO stock.
But the key word is “temporary.” How long before competitors ranging from Sony Corp (ADR) (SNE), Panasonic Corporation (ADR) (PCRFY), JVC Kenwood Corp NPV and startups catch up? At lower prices, no less?
And as for drones, same problem. There’s no shortage of companies manufacturing high-quality, GoPro-ready drones for a market that cares about price.
The thing is, GoPro can’t win just because it has the best brand. The problem is that its market is too small.
Apple Inc.‘s (AAPL) market is enormous, where aspirations to upgrade are built in. GoPro’s audience is limited to a subset of action enthusiasts like surfers and base jumpers who happen to want to digitally film their activities. At the same time, hunger for upgrades is much more muted.
Bottom Line for GPRO Stock
As Josh Brown, CEO of Ritholtz Wealth Management, says, GRPO has the same problem as every consumer electronics story. It’s impossible to get people to buy a second one.
The reality is that at some point GPRO will have to find someone to acquire it. That alone limits the upside. Outside of a deal premium, there’s no reason to buy shares in a company that has a dead-end business plan.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.