What was once a valid question is quickly becoming a rhetorical one: Will GoPro Inc (GPRO) ever get its act together?
GPRO stock is down about 6% in midday trading Monday, after Pacific Crest said the action camera-maker’s inventory levels are near all-time highs, a problem exacerbated by dramatically lower sell-through of its products in the U.S., its main market.
The news seems to be just another speedbump in GoPro’s long and winding road to recovery — a recovery that doesn’t quite seem to be underway yet.
With GPRO stock now down 26% in 2016 and 70% in the last year, CEO Nick Woodman needs to get his act together and piece together a turnaround, or shareholders might have a legitimate reason to oust the founder.
GPRO Succumbing to “Soft Market”
The company’s problem, at its core, is simple: The action camera market is cooling, and competitors — think Canon Inc (ADR) (CAJ), Nikon Corp (ADR) (NINOY), Samsung (SSNLF) and Sony Corp (ADR) (SNE) — are flooding in.
That’s translating directly into slower selling … and thus higher inventory. Brad Erickson of Pacific Crest currently has GPRO stock at a “Neutral” rating, although these new data aren’t at all flattering. Says Erickson:
“Our checks detected days of inventory at roughly three weeks consistently over the past month, and we estimate aggregate sell-through in the United States was down nearly 40% y/y in Q1.”
Now, thinking through this issue like a true investor, you might say to yourself, “OK, so sales are down from a year ago — that still doesn’t necessarily mean GPRO stock is in trouble. After all, analysts might’ve seen this coming; GoPro shares could actually pop if sales fell less than expected!”
All of that is true. But it certainly doesn’t look like GPRO is primed to outperform expectations. Here’s Erickson again:
“Further, we estimate current sell-through run-rates are ranging 800,000 to 1 million units per quarter versus Street expectations of ~1.1 million in Q2 and ~1.2 million to 1.3 million in Q3.”
Those are good metrics for investors to know, particularly since the oPro earnings date is sneaking up on us: The company reports after the bell May 5.
That will almost certainly not be a pretty day for GoPro, as analysts expect revenue to fall off a cliff and crater 53.4%. The Street also expects the company to swing to a loss, losing 60 cents per share compared to positive EPS of 24 cents in Q1 2015.
Bottom line? GPRO is in major trouble, and it’s really, really hard to see a feasible way out of its current hole.
Sure, it’s moving into sexy areas like drones and virtual reality, but its action cameras are the only thing GoPro has proved, and its next model, the Hero5, probably won’t come out until October.
I doubt many people are lining up to pre-order the big-ticket “Omni,” either — a six-camera array that runs $4,999.
Given GoPro’s apparent strategy — keep selling old products people aren’t buying anymore and release new products at a snail’s pace — it’s no wonder GPRO stock is universally hated by analysts.
Drones may be cool and all, but it’s time for GoPro to get its head out of the clouds.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.
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