You can say this much about GoPro Inc (NASDAQ:GPRO) … it’s never short of ways to make headlines.
And while its aerial drone was pushed back to the last quarter of the year, it’s been a hot topic all year long.
Unfortunately for GPRO stock owners, GoPro isn’t nearly as good at making money as it is at making headlines. And, despite the fact that the Omni scores very high on the “wow” scale, like most of GoPro’s product lines, it scores low on the “how many it can sell” scale.
Fans knew it was coming as far back as April, but they didn’t know until very recently that Aug. 17 would be the first day the virtual reality camera called the Omni would be available for purchase.
It’s not a complicated setup. A cube-shaped frame holds six Hero4 cameras, one facing in all six directions. The package also includes the software needed to edit the digital film shot using the setup. It doesn’t shoot 3D images or true virtual reality films, but it’s a quality 2D device.
Granted, the price tag of $5,000 keeps it out of reach for most casual users. Then again, it’s not likely to be aimed as the casual user. Films crews — independent and studio crews — are the primary target market. Even then, though, how much demand can there be for a low-end camera that shoots virtual-reality films?
Any crew willing to drop five grand for a VR package would likely be willing to invest a lot more and get much more powerful hardware, like the Google Odyssey (at a reasonable price of $15,000) or the super-high-performance Ozo, from Nokia Corp (ADR) (NYSE:NOK), that goes for $60,000 a pop.
And yet, to the extent the Omni is intended for regular people (it’s still not clear), the Gear 360 from Samsung Electronics (OTCMKTS:SSNLF) accomplishes something similar with two back-to-back fisheye lenses. The price tag? A mere $350.
Reality Check for GoPro Bulls
It’s a point that’s been made about GPRO before but needs to be made again … GoPro makes some of the best cameras in the world, but the company targets the smallest-possible sliver of its target markets. It works, but it makes growth tough to muster.
This red flag started to wave in the fourth quarter of last year, when year-over-year revenue fell 31% and GoPro swung from a profit of $107 million to a loss of $34.5 million when holiday demand just didn’t materialize.
Explanations were plentiful, but perhaps the two GoPro CEO Nick Woodman wanted to ignore the most were (1) the advent of many other lower-priced action cameras that were “good enough” for most consumers, and (2) a practically non-existing upgrade cycle thanks to such high quality from its older cameras.
Oh, when it’s all said and done, it’s also still a niche product.
The Omni faces a different challenge, though one just as fundamentally troubling. There are no semi-pro or pro-am film crews or virtual reality experience makers looking for a mid-grade VR camera setup. The serious ones have to invest in the higher-end equipment like the Odyssey and Ozo, while the average consumer will find the $350 Gear 360 more than satisfactory for hobbyist use.
Once again, in trying to be too many things to too many people, it’s not enough of anything to enough people.
Bottom Line for GPRO Stock
To be clear, this isn’t to suggest there is no market whatsoever for the Omni, or its Hero4 and Hero5 cameras, or its upcoming FPV drone. GoPro will certainly sell some of them to some segment of the market. That’s not in dispute.
The issue is one of scale; can GoPro even come close to justifying its current market cap of $1.95 billion?
For perspective, the company has generated $1.24 billion worth of revenue over the course of the past four quarters. That’s not far off the norm for GoPro’s market cap. Just bear in mind sales have been falling fast, and GoPro dipped deep into the red ink for its last couple of quarters.
There’s no evidence sales of action cameras have turned around in the meantime either. If GoPro is to grow, the Omni and the impending drone will have to be smashing successes, with both overcoming a great deal of competition. Doing so seems unlikely.
GPRO isn’t worth the risk, despite the hype.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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