After hitting a recent low of $9 per share, GoPro (GPRO) has staged a nice rally, up about 15%. However, it is important to realize that the year-to-date return is still horrendous, at a grueling -40%. In fact, during the past 12 months, GoPro stock has lost a staggering 75% of its value.
So, is the recent buying in GoPro stock real strength that proves a bottom has been found? Or, is this just a proverbial “dead cat bounce” for GPRO?
Let’s take a closer look to determine what’s really going on.
First of all, the GPRO business is essentially in free-fall. In the latest quarter, sales came to $436.6 million, down 31%. The Street, on the other hand, was looking for $496.1 million. And the company’s guidance was equally terrible: Analysts were calling for $298 million in revenues for the next quarter. GoPro is expecting … $180 million, maybe as low as $160 million.
Given such disastrous numbers, is it any wonder that GPRO stock has been a wipeout?
No Shortage of Problems for GoPro Stock
The big issue for GPRO has been the launch of its Hero4 Session camera. For the most part, the product just wasn’t compelling enough to get consumers to open their wallets.
But there are likely other issues that should cause concern for investors in GoPro stock. For example, the competition is getting much more intense. Just some of the rivals include biggies like Canon (ADR) (CAJ), Nikon (ADR) (NINOY), Samsung (SSNLF), Sony (SNE) and Garmin (GRMN). Then there is the potential entry of Apple (AAPL).
Something else that should worry holders of GoPro stock: The potential market size. It’s really tough to gauge, and the company’s opportunity may ultimately prove to be a niche. After all, how many people need a durable camera for active sports? More importantly, how many people will need to frequently upgrade their devices? The older cameras seem perfectly capable compared to newer versions, which may help explain why the Hero4 Session camera failed to get much traction.
Now it’s true that GPRO is taking actions to get things back on track. To this end, there will be a 7% reduction of the workforce as well as improvements in the software, such as making editing easier.
And yes, GPRO plans to broaden its product line, particularly with its Karma drone and virtual reality (VR) offerings. Yet such things may have little impact on GPRO stock because the launches aren’t expected until the end of the year. Besides, the drone and VR markets are also seeing lots of competition. Facebook (FB) has been quite vocal about its ambitious plans with its own VR offering, Oculus Rift.
Granted, the end-game for GPRO may ultimately be a buyout — there are a variety of potential suitors like Apple and Microsoft (MSFT). But then again, it can be dicey to make such bets. Let’s face it, there have been many other rumors with tech operators that have not materialized, such as with BlackBerry (BBRY) and Yahoo (YHOO).
All in all, there probably won’t be any real catalysts for GoPro stock for some time. Rather, it seems that much of the action will be periodic rumors that fail to lead to tangible gains.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.