For much of its 20-month existence, GoPro Inc (GPRO) stock has been an epic disaster. Lately, however, there have been indications that the worst may be over.
GoPro stock may have finally bottomed, rising more than 16% in the two weeks between its all-time closing low of $9.78 and this morning’s open. On Tuesday, it popped more than 11% — seemingly without any tangible reason other than the turnaround in the broad market.
That comes on the heels of a 10%-plus pop last week.
Big Picture for GoPro Stock Still Looks Bad
Does that mean there’s hope yet for GPRO?
It’s way too early to make that proclamation. In the big picture, GPRO stock is still in a downward spiral; just six months ago it was trading above $64. Now it’s worth barely a sixth of that.
Not two months ago, I wrote in this space that it was essentially dead. Here’s what I wrote in my 2016 GPRO forecast:
“The company is sort of a one-hit wonder. It makes a camera that one can affix to their head while doing any sort of extreme activity — skiing, rock-climbing, skydiving, etc. But it doesn’t really have any other groundbreaking products.
“The excitement over the GoPro camera carried the stock through its IPO and first few months on the market … then investors got bored. ‘What else you got?’ Wall Street collectively asked.”
At the time, GoPro stock was trading at $16, a new low. This morning — again, less than two months since I wrote that GPRO had lost its sizzle — the stock opened at $11.38.
Mind you, that’s after the 16% bump in the last two weeks.
So, the stock’s overall trend remains decidedly — in fact disturbingly — down. How have things actually gotten worse for GPRO stock in the last two months?
A very bad quarter is the main reason. Sales slipped 31%, the first year-over-year revenue drop since the first quarter of 2014. Earnings per share were also in the red for the first time since the second quarter of 2014, at a loss of 8 cents per share.
The Hero 4 Session was to blame. Sales of the company’s newest wearable camera, launched last July, disappointed. Nick Woodman, GoPro’s CEO, blamed the sluggish sales on his company’s need to “develop software solutions that make it easier for our customers to offload, access and edit their GoPro content.”
GPRO investors (if there are any of you left) should hope that’s the case, because the alternative is that consumers have simply lost interest in action-sports cameras. If that’s the case, then there really isn’t much hope for GPRO unless it expands its product lineup beyond just wearable cameras.
Perhaps the company’s new patent license agreement with Microsoft Corporation (MSFT), signed earlier this month, will do just that. The Microsoft deal was light on specifics, though some industry analysts have speculated that it will give GPRO access to Microsoft’s OneDrive cloud service, potentially solving its backup and editing problems.
Regardless, it’s never a bad thing to be in bed with one of the largest technology companies in the world.
Also, a recent Barron’s article suggested that GPRO could be a takeover target, with Microsoft and Sony Corp (ADR) (SNE) listed among its potential suitors. If true, that would certainly result in a nice overnight payday for holders of GoPro stock.
Long-Term GPRO Trend Remains Down
But that’s all speculation. The reality is that GPRO’s ugly fourth quarter appears to be the start of an unsightly trend: per-share earnings are expected to dip further into the red, with a full-year EPS forecast of -$0.74. And sales are expected to decline another 15%.
Worst of all, GPRO stock has still fallen 72% in the past year. Two good weeks aren’t enough to feel confident that the stock has suddenly turned the corner.
Thus, my recommendation is the same as it was two months ago: steer clear of GoPro stock. With sales and earnings no longer growing, Microsoft licensing agreements and rumored takeover interest amount to little more than lipstick on the GoPro pig.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
