GoPro Inc (NASDAQ:GPRO) was pelted last week after the release of its dismal third-quarter results. GPRO stock finished the week down 18%, and it’s off 40% for the year-to-date.
The trouble with GRPO’s earnings was that even though investors had been expecting to see lackluster results, they weren’t prepared for the abject nightmare that GoPro actually delivered.
GoPro reported a loss of 60 cents per share, far worse than the 35-cent loss that analysts estimated. Sure, that alone might not have shaken GoPro stock, as it’s common knowledge that GPRO has been struggling with declining device demand for several quarters.
But if that didn’t spook Wall Street, the lack of information regarding the upcoming holiday quarter sure did.
GPRO’s Hopes Are Pinned on Karma
GoPro has sent forth its latest action camera iteration, the Hero5, as well as a drone called Karma that the company says can save the company’s bottom line. The drone is especially important because it is GoPro’s first major step outside of cameras.
The success of Karma is absolutely necessary for GPRO stock to stay afloat for two reasons:
- GoPro needs money pretty badly.
- The successful launch of a product other than a camera will position GPRO as something more than just a camera-maker. That should give investors confidence in CEO Nicholas Woodman’s future vision for the company.
The devices were launched just in time for the all-important holiday quarter, but the good news ended there. The firm lowered its full year revenue guidance to between $1.25 billion and $1.3 billion, suggesting that Karma and Hero5 may not sell as well as the firm initially believed.
The lowered guidance likely has something to do with GoPro’s supply issues.
Rumors that the company’s shipments had to be delayed due to production problems were confirmed by management on Thursday, and Woodman said that the firm was unable to keep up with demand for the new devices.
This might sound like a good problem, but it’s not. GoPro needs to sell every single device it can. The company’s lackluster finances and investors’ waning confidence all hinge on the sales of these devices. Without product to sell, GPRO won’t be able to produce the numbers it needs to regain momentum.
That’s why Bank of America’s Jason Mitchell just downgraded GoPro stock from “Buy” to “Underperform” and reduced its price target from $17 to $10 — about 9% lower from here.
Obviously, GoPro’s competitors will try to swoop in this holiday quarter and take advantage of the supply situation.
Even assuming there are enough Karma drones and Hero5 cameras to go around — which appears unlikely — GoPro still has to worry about rival brands that are offering similar devices for lower prices. Limited availability of Karma drones and Hero5 cameras before the gift-giving season means that some consumers may opt for a more available brand, which will tie them into competing companies like Garmin Ltd. (NASDAQ:GRMN), Sony Corp (ADR) (NYSE:SNE) and TomTom NV (OTCMKTS:TMOAF).
Will GPRO Stock Come Back Next Year?
GoPro is expecting to return to profitability in 2017, helped by the new devices as well as the firm’s latest service offerings, a cloud storage subscription and movie editing apps. This return to black will be a much-needed reprieve for GPRO stock investors after the past year’s 55% decline.
But it’s questionable whether the company can even pull this off.
It appears that Karma and Hero5 are not going to be the lifelines GPRO was hoping for. Whether the disappointing full-year guidance was due to slow sales or inventory issues, a fourth-quarter miss could be a crucial nail in the company’s coffin.
GoPro needs to get devices into consumers’ hands, not only because the firm needs to generate sales, but because the company needs to hook people into its developing product ecosystem to make its future plans work. If people don’t own Karma and Hero5, they are unlikely to sign up for the firm’s cloud storage subscription, and GoPro’s dreams of creating an “experience sharing company” will crumble.
OK … Is There Any Hope?
If GoPro manages to eke out better-than-expected sales in the fourth quarter … well, that’ll be one big surprise, and likely will give GPRO stock a much-needed lift. But that scenario seems pretty unlikely considering management’s guidance and the firm’s supply issues.
There’s always a chance that GPRO will pull a rabbit out of the hat and make a recovery come 2017, but for now it appears that the firm is just barely keeping its head above water.
GoPro investors can do little else except hope for a takeover. That’s about the only way you’re going to make money on this stock.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.