2016 has not been kind to GoPro Inc (GPRO): After issuing a preliminary report in January warning that revenue will come in well below analysts expectations, GoPro stock took a plunge. Year to date, GPRO is down about 34%.
Earlier this week, GoPro announced that its acquiring video-editing apps Replay and Splice.
“Splice, Replay and GoPro will combine to deliver what we believe will be the fastest and most enjoyable mobile editing experience,” GoPro CEO Nick Woodman said in the acquisition announcement.
The company is spending $105 million in cash and equity to secure these two properties. With just $474 million in cash, it’s a pretty big bet to turn things around.
GoPro Stock: In Needs of a Catalyst
GoPro’s initial public offering came at a great time for the company. (Not so great for investors who blindly jumped in.) Revenue was growing rapidly, gross margin was expanding and its social media presence was booming.
Last quarter, revenue declined, gross margin contracted and management has quieted down about its social media presence, focusing on specific examples instead of overall growth metrics.
The one general metric it gave was that YouTube saw a 22% increase in content with GoPro in the title, but gave no details about engagement as it had in the past.
GoPro recently forged a partnership with Twitter Inc (TWTR) enabling users to live stream content from their cameras through Periscope. This move works around a couple pain points users typically have with GoPro. First, live video doesn’t require editing, so, secondly, users can avoid using GPRO’s subpar editing software.
But the Twitter partnership doesn’t solve one of GoPro’s biggest problems. Its mobile editing software is bad. Really bad. The acquisitions of Replay and Splice should help GoPro solve that problem as GoPro integrates their software with its own. Ultimately, GoPro stock investors are hoping improved editing software will reaccelerate growth in GoPro’s social media engagement.
While GoPro still doesn’t have a plan for its shareholders to monetize its presence on social media, it basically acts as free advertising for its cameras.
With revenue from camera sales declining, GoPro needs something to pick it back up. GoPro management could ideally figure out how to make some money from its user-produced content.
GPRO: Zeroing in on Its Strengths
With the acquisitions of Replay and Splice, GoPro is solving one of its weak points. It’s bringing in experts from both companies that can continue to support the software side of GoPro’s ecosystem. That leaves Woodman and crew to focus on the things that made GoPro a success in the first place — its hardware.
In its January earnings warning, Woodman took the blame for one of its biggest flops, the GoPro HERO4 Session. Woodman says the problem was the decision to price the camera at $399. It’s since been reduced to $199.
But the idea behind the HERO4 Session was to create another high-margin camera. That should still be the goal of GPRO, and it will help solve the financial issues that plagued GoPro stock last quarter.
With the software in good hands, the product team can turn its attention to finding that next product. If all goes well, the new content uploaded using improved editing software will help move those cameras off the shelves.
Still, it’s a long path to get there, and the tolls are expensive.
As of this writing, Adam Levy did not hold a positions in any of the aforementioned companies.
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