Back in February 2015, the CEO and co-founder of GoPro Inc (NASDAQ:GPRO), Nicholas Woodman, boasted: “We see a future in which GoPro serves as a platform for people around the world to visually express themselves like never before. A future in which their shared experience and collective content on our platform is as valuable to GoPro, as YouTube is to Google, or Instagram is to Facebook.” And yes, GPRO stock was in hyperdrive and so was the revenue ramp, up a sizzling 75%.
But unfortunately, this would mark the high point. During the next couple years, GPRO stock would come undone, losing more than 80% of its value.
OK then, so what now? What’s the future of GoPro?
Good Side of GoPro
Well, there are actually some silver linings. In mid-March, GPRO announced an update on its guidance: the forecast is for non-GAAP profitability on a full-year basis and that revenues — for the current quarter — will be on the upper end of the previous outlook of $190 million to $210 million.
As a result, Wall Street responded with plenty of buying, pushing GPRO stock up about 19%.
While this is certainly encouraging, I think investors should still be cautious. Let’s face it, GPRO has had plenty of missteps and misfires. Besides, the sentiment was already so low that any kind of good news would be a catalyst for the stock price. It’s also important to keep in mind that a hefty 31% of the float for GPRO is in short positions. That is, it seems like a good bet that a part of the bull move has been the result of a “short squeeze.”
But all such things are more technical factors. Perhaps the most worrisome issue is the brutal actions GPRO has taken, such as to slash the headcount. Note that the company has plans to layoff 17% of the workforce. In fact, this is the third reduction during the past two years.
Even though the move will result in a substantial drop in operating costs, there will likely be a hit to morale. It will also mean fewer resources for critical R&D as well as staffing for sales and marketing.
Keep in mind that a big issue with GPRO has been the quality of its products, as seen with the Hero4 and the Karma Drone (which had to be recalled). There was also the recent shutting down of the entertainment division.
Improvements for GPRO Stock?
So with the cost cutting, do you think this will mean things will get better?
This seems like a stretch.
But of course, the smartphones from Apple Inc. (NASDAQ:AAPL), Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) and Samsung (OTCMKTS:SSNLF) are offering much more camera functionality. According to the GPRO annual filing: “it is possible that, in the future, the manufacturers of such devices, such as Apple, Google and Samsung, may design them for use in a range of conditions, including challenging physical environments, or develop products with features similar to ours.”
Oh, and the drone market is also rife with competitors. Just some of the players include DJI Technology Co., Parrot SA and Yuneec International Co.
Granted, GPRO stock is fairly cheap right now, with the price-to-sales ratio at only about 1X. What’s more, the year-over-year comparisons with revenues and profits should be attractive this year.
But such factors may not matter much if GPRO cannot get back to creating standout products. Again, this will not be easy since the company is resource constrained and must deal with a market that is crowded with many offerings. In other words, jumping into GoPro stock looks too risky right now.
Tom Taulli runs the InvestorPlace blog IPO Playbook as well as OptionExercise.com, which provides interactive tools & services for employee stock options of pre/post IPO companies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.