GoPro Inc. (GPRO) Stock Slammed by Karma Drone Recall

GoPro Inc. (NASDAQ:GPRO) was already facing a terrible holiday season, but things have somehow gotten worse. GoPro stock is set to open 10% lower today … and no, it has nothing to do with the U.S. election. Instead, last night, GPRO slipped in a pretty serious negative announcement — a Karma drone recall, due to safety concerns.

GoPro Inc GPRO Karma Drone and Hero 5

Source: GoPro

GoPro’s malaise may have gone ignored last night, but today, it’s in plain light. GPRO stock is taking a beating.

Karma Drone Recall Details

On its website, GoPro outlines why it initiated the recall just a couple weeks after launch:

“The recall was announced after we discovered that in a small number of cases, Karma units lost power during operation.  We are investigating the issue and working in close coordination with the U.S. Consumer Product Safety Commission and the Federal Aviation Administration.”

It’s not just the prospect of being out an $800 drone if it loses power during flight and crashes. A 2.2-pound drone unexpectedly falling out of the sky is a serious safety concern. For that reason, GoPro is telling all customers to bring back their drones, even if they appear to be working perfectly.

As part of the Karma drone recall, consumers are required to return the drone itself, as well as all accessories and components included with it. That means the Karma Grip, and (in the case of a bundle purchase) the Hero 5 Black camera as well.

GoPro is offering a full refund on the purchase price, but there are no exchanges.

GoPro’s Likely Miserable Holiday Season Looks Even Worse

Only last week, GoPro stock tanked after a terrible Q3 earnings report. The company missed badly on already low expectations, then announced it was having manufacturing challenges that were preventing it from making enough Karma drones and Hero5 cameras to meet expected holiday demand.

As a result, instead of using the lead-up to Christmas to push its new gear, the company was cautioning investors to expect poor sales. Naturally, GPRO stock was punished for the double-whammy.

So the Karma drone recall could not have come at a worse time.

Not only will it make GoPro’s already miserable holiday season worse, but it damages the brand. The company’s first foray into making a drone — and its first attempt to diversify beyond action cameras — was already being overshadowed by the leading drone manufacturer DJI. That company stole GoPro’s thunder by immediately releasing the new DJI Mavic Pro, a drone with a similar folding form factor.

Having the Karma recalled and likely out of the picture altogether for the holiday season gives DJI plenty of opportunity to move on the opening — and the potential to take a swipe at GoPro by touting its own extensive experience in drone design.

The news was buried, with the recall announced during U.S. election coverage, but investors noticed. GoPro stock is about to open Wednesday trading down 10%.

What Happens Next?

The first priority for GoPro will be to determine exactly what is causing the power failure in its drones. Once it has a fix, that has to be implemented. Production issues have already derailed Karma drone sales for the holiday season. But if GPRO happens to have any in its warehouse ready to go to retailers, those will have to get pulled and fixed.

Above all, the company will have its fingers crossed that no recalled Karma drone suffers a serious in-flight accident before being returned. If that were to happen, it could deal a killer blow to the company’s drone aspirations.

According to Engadget, only 2,500 of the drones have been sold to date. So this is one case where poor sales could be considered a good thing.

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

Article printed from InvestorPlace Media,

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