Over the past year, action-camera maker GoPro Inc (GPRO) has navigated through choppy waters. GPRO stock has declined nearly 75% over the past year as investors lost confidence and abandoned their positions amid concern that demand for HD action cameras was declining.
With the stock trading at just under $12, it may be tempting to buy shares in hopes of a rebound, but the company’s core issues are still far from being resolved, which makes GPRO stock a very risky bet.
GoPro bulls point to the company’s upcoming product releases as a reason to believe a bounce is on the way. The company is set to debut a new camera model as well as a drone later this year.
While those offerings could drum up some renewed interest in GoPro, they are unlikely to reverse the company’s course on their own.
The Problem With GPRO Stock
GoPro’s major problem is its business model. The company has made a name for itself as one of the best camera makers out there, but the company has failed to entice its customers to continuously upgrade to new products, muting demand for its HD cameras.
Not only that, but its potential customer base is small. The majority of GoPro users that will purchase new items like its drone and Hero 5 camera are adrenaline junkies, and most analysts agree there aren’t enough people in that group to justify a meaningful revival in demand.
GoPro has been investing in the development of new software that would make it easier for users to edit and share footage, but some worry it could be too little too late.
While able to design an exciting and initially well-received product, GoPro failed to back it up with loyalty-building software. The HD action-camera market has become increasingly crowded with lower cost alternatives and GoPro offers very little to differentiate itself from its peers.
For the moment, it’s difficult to judge whether or not GoPro’s latest push into software will be well received, let alone enough to revive its brand.
What About GoPro’s Microsoft Partnership?
Earlier this year, Microsoft (MSFT) announced a partnership with GoPro which gave GPRO stock a temporary lift. Many began to speculate that GoPro may take advantage of Microsoft’s cloud computing arm to provide its users with a better way to transfer and share footage.
Others believe that the partnership will allow GoPro will use Microsoft’s file system to make it easier to store larger files. While the partnership could prove positive for GPRO stock, the vague intentions between the two companies makes it difficult to say whether it’s a reason to invest.
It’s important to note, however, that Microsoft has made thousands of deals with smaller tech companies in the past, many of which yielding no major changes.
GoPro Management Is a Problem
Another issue with investing in GPRO stock is management. The company has made some questionable strategic choices over the past year, namely its decision to conduct stock buybacks shortly before announcing dismal earnings.
GoPro acquired 1.5 million shares at $23.05 per share at the end of 2015, resulting in a near $20 million loss when its stock tanked following a disappointing earnings report at the beginning of this year.
The bottom line for investors is that GPRO stock is a risky bet at the moment.
There is a chance that the company will make a comeback this year, but with so many unknowns, it would be a gamble rather than a sound investment.
Once the company has unveiled its latest hardware and given investors a glimpse into how they plan to incorporate software into their product offerings, it might provide more of a case to buy, but for now the company hasn’t done enough to inspire confidence.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
