GoPro Inc (NASDAQ:GPRO) reported underwhelming third-quarter earnings after the bell on Thursday, setting up what has become a ritual on Wall Street: The deep selling off of GPRO stock. The action camera maker wasn’t expected to wow by any means, but its Q3 figures were far worse than analysts’ expectations.
Once again, GoPro finds itself in serious jeopardy.
Forget the third quarter. This whole year has been a struggle for GPRO stock. This is just more of the same. GoPro has struggled with declining sales and a lack of future growth prospects, and while most expected Q3 to be “not good,” they didn’t expect what the company doled out.
GPRO reported a loss of 60 cents per share of GoPro stock on revenues of $240.6 million. Analysts were looking for a loss of just 34 cents on revenues of $313 million.
GoPro Looks Back, Looks Forward
GoPro’s efforts to clear out the Hero4 did very little to help the firm mitigate its sales decline, the company had $241 million worth of sales — a 40% decline from a year ago. Despite GPRO’s efforts with promotions and discounts on the Hero 4 camera over the past quarter, demand was still lacking.
Management’s fourth-quarter guidance did very little to assuage the sting of the third-quarter fail.
GPRO guided revenues at $625 million, which was much softer than analysts predicted. And that’s particularly biting because electronics manufacturers are expected to perform in the fourth quarter — after all, their devices are often sold as holiday gifts. Companies like Fitbit Inc (NYSE:FIT) are in the same boat. So a weak performance in what should be the strongest quarter of the year? That paints a dismal, dismal picture for GoPro and its future.
Hero5 and Karma
Sales of the recently released Hero 5 cameras weren’t reflected in the Q3 results. However, investors certainly were interested in how well-received the device has been so far.
The Hero5 was released in October and will be integral to the success of GPRO stock. GoPro will need to sell every camera it can to meet management’s full-year guidance.
In addition to the Hero5, investors were also hoping to hear more about GoPro’s Karma drone this quarter. Karma represents GPRO’s first step toward product diversification, and many believe it can be used as a barometer for the company’s future success.
GoPro has struggled to convince people that it is more than just a one-trick-pony, and sales of the Karma drones will go a long way in proving that the firm is more than just an action-camera maker.
The problem: We didn’t get any word on whether the devices were selling well in the early going. And worse, based on the firm’s fourth-quarter guidance, there’s not much reason to believe they expect a rip-roaring success.
GoPro also has been working to diversify its offerings has been though content creation and sharing. The company has rolled out a new video editing app as well as a new pay-per-month subscription service. GPRO also recently signed on with Red Bull for a content sharing partnership, which is intended to help the company beef up its software presence.
The firm noted that there has been a lot of progress made on this front so far this year, but without any concrete figures, it’s difficult to say just how these services will impact GPRO stock as they gain more traction.
The Bottom Line on GPRO Stock
GoPro is a risky play no matter how you look at it. Weak sales reflect a major oversight on management’s part, whether it’s that GPRO is unable to look ahead well enough to remain relevant, or that it’s unable to manage Wall Street’s expectations.
Karma and the software side of GoPro may be too little too late for the company, and the limited availability of the Karma drone — at a time when GoPro needs to be selling as much product as possible — is telling of how well the firm is able to cope with a quickly changing industry.
The only real upside to GPRO stock is that today, it’s awfully cheap. But based on the current state of the business, GoPro’s only real hope of becoming interesting once more would be a credible takeover rumor.
Avoid GoPro stock like the plague.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.