GoPro Inc (NASDAQ:GPRO) investors had a year to forget in 2016 after GoPro stock was pelted and its valuation cut in half. The beleaguered video camera manufacturer created a perfect storm for itself by botching up pricing of the Hero4, delaying the launch of its iconic Karma drone for months and then issuing a recall of the drone shortly after citing mechanical problems.
GPRO stock hit rough water after the company lowered its Q4 and full-year revenue guidance in November, just days before issuing a recall of the $800 drone.
The company said that it expects Q4 2016 revenue of $600 to $650 million, versus consensus of $675.5 million with fiscal year 2016 revenue clocking in at $$1.25 to $1.3 billion versus the $1.39 billion estimate on Wall Street. GoPro chalked up the lowered expectations to ”supply issues,” which in hindsight appear to be related to the Karma drone recall.
But GoPro’s management now says investors should brace for a “Karmic return” in 2017. The company did not give precise details of the re-introduction, but it will probably do so when it reports earnings for the all-important holiday quarter in February.
GPRO Stock Is a One-Trick Pony
GPRO stock has notched 5.8% higher for the year-to-date. Much of the gains have come after the company made the announcement on Jan. 5, and for good reason. GoPro stock has been desperately trying to lose its tag as a one-trick pony whose only lifeblood are its cameras.
Sure, the company has tried its hand at other ventures, including becoming a content creator, launching a cloud subscription service aka GoPro Plus, and even creating a platform where GPRO users can license their photos and video clips aka GoPro Awards. But the revenue visibility of these businesses remains cloudy at best, leaving investors with little choice than pinning their hopes on the Karma drone.
If GPRO is able to position itself as something more than just a camera-maker, GoPro stock could soar.
Uphill Climb for the Karma Drone
But the struggles faced by other drone manufacturers suggest that making Karma count will not be a walk in the park. Parrot (OTCMKTS:PAOTF), the French electronics company that is behind several drone brands, says that it plans to lay off about a third of its workforce after missing its fourth-quarter sales target. Lily Robotics, a startup that promised to deliver a revolutionary camera drone that would follow you everywhere without needing a remote control, has announced that’s folding up operations and returning $34 million in pre-orders cash to customers. Lily will find itself in good company after kickstarter-backed Zano drone also went under last year.
Perhaps GoPro stock investors will recognize an eerie resemblance between the Karma drone fiasco and the sad tale of 3D Robotics and its Solo drone. 3D Robotics was widely slated to become one of the greatest consumer drone manufacturers in North America. But the company will be lucky to live to tell the tale after burning through $100 million in venture capital in one year in what has played out to be a classical case of managerial ineptitude and excessive hubris.
3D Robotics put all its eggs in one basket by betting the farm with Solo. Solo, however, failed to take off due to buggy components, missed deadlines and stiff competition from Chinese manufacturer DJI and its popular Phantom drone. Solo bundled with a GPRO camera sold at more than $1,700, leaving it with little hope of competing with DJI whose vertically integrated operations allowed the company to aggressively cut costs and sell a Phantom 3 Professional package for only $1,000.
Looking at how GoPro has priced Karma suggests that it probably won’t have much wiggle room itself if DJI decides to turn the screw again. DJI lowered the price of the Phantom 3 Professional package from $1,300 to $1,000 in the space of just one year to counter the threat by Solo. The Karma drone bundled with a Hero5 Black goes for $1,100, though GoPro had earlier said that it plans to release a second bundle with a Hero5 Session for just $1,000. Karma itself costs $800, while a Hero5 Session costs $299, leaving GoPro with little ammunition for a price war with DJI.
Hero5 Can Do the Trick for GoPro Stock
When GPRO recalled the Karma 16 days after launch, it claimed to have sold only 2,500 devices. That’s a run-rate of ~15,000 devices a quarter and $12 million in incremental revenue, hardly enough to move the needle for a company that’s expected to do more than $600 million in sales during the fourth quarter.
The turnaround for GoPro stock will therefore have to come from its cameras. And that’s not a bad thing in and of itself because GPRO cameras currently hold eight of the top ten spots for the best-selling action cameras on Amazon. The Hero5, which GoPro launched in October, has claimed pole position, outselling even Samsung’s (OTCMKTS:SSNLF) popular Gear VR, which the company recently claimed had sold more than 5 million units.
Ultimately, the relaunch of Karma will help create a good vibe around GoPro stock. But a true turnaround probably won’t come until the company’s cameras start selling again like hot cakes. And so far, Hero5 seems to be doing a good job.
As of this writing, Brian Wu did not hold a position in any of the aforementioned securities.