GoPro Inc (GPRO) Will Be Miserable This Holiday Season

GoPro stock took a beating overnight after Q3 earnings missed badly, but the real issue is holiday expectations

GoPro Inc (NASDAQ:GPRO) released its third-quarter earnings yesterday and, like Fitbit Inc (NYSE:FIT) the day before, GoPro missed earnings this quarter and warned that manufacturing issues with new products would impact holiday sales. Also, like FIT did the night before, GoPro stock got hammered overnight.

GoPro stock
Source: GoPro

Expectations for GoPro were low for this quarter. Demand for its aging action cameras has been falling all year. The replacement Hero5 models announced in September didn’t go on sale until late October, so there would be little relief in the third quarter. And, the new Karma drone — revealed at the same September event — also had a late October release date.

Despite those low expectations, the company’s earnings were even worse than predicted, and by a wide margin. As TechCrunch reported, they were so bad (missing by 23%) that trading in GoPro stock was halted prior to their release.

GPRO started off Friday’s trading down around 20%. While shares rebounded heavily in the first few hours, they still were off by about 6% at midday.

Bad Karma Around Karma Drone (And Hero5)

While GoPro was expecting its action cameras to continue to be its big revenue generator, the company had high hopes that the new Karma drone would also be a hit. A best-selling drone would dispel the perception that the company was a one-hit wonder that could only release cameras.

At a starting price of $799, the drone would also be a high-revenue product. Drones are becoming more popular with consumers and they are expected to be in high demand this holiday season.

The Karma had been delayed, but actually making its release official wasn’t the end of the problems.

Just days after GoPro took the wraps off its first drone, industry leader DJI announced a new drone that looked awfully familiar. The DJI Mavic Pro shared the Karma’s key feature of foldability for easy transport. And, while it costs extra for a Hero5 camera to mount on the Karma drone, DJI included a 4K camera for free, essentially undercutting GoPro’s base price by several hundred dollars.

Adding insult to injury, DJI had announced a release date that was before the Karma’s.

GoPro may have been hoping its first foray into a new product line would be received with open arms, but reviews of the Karma have been mixed. Whether or not it would be the hoped-for home run was beginning to look questionable.

According to GoPro, the Karma situation has only gotten worse due to manufacturing challenges — an issue that is also hitting the new Hero5 cameras.

No Merry Christmas for GoPro

Quoted in Bloomberg, GoPro CEO Nick Woodman explained the situation:

“Unfortunately we experienced production issues that resulted in lower than expected launch volumes for Hero5 Black and Karma. We anticipate difficultly catching up to meet forecasted demand during the fourth quarter.”

In other words, in a situation eerily similar to Fitbit’s, because of difficulties in manufacturing GoPro is entering the crucial holiday shopping season with a shortage of its new products. Even if consumer demand is there, the company won’t be able to take full advantage of it.

And, just like Fitbit, potential buyers have plenty of other choices if they can’t find a Karma Drone or Hero5 on store shelves. So, the shortage not only costs sales and revenue for the quarter, but also risks potential customers switching to a different platform altogether.

The beating GoPro stock took overnight reflects what investors think about this development.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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