To what extent can GoPro Inc’s (NASDAQ:GPRO) renewed focus on user engagement and an expanded product pipeline push GRPO stock higher?
Once dominating the niche action-camera market that it helped create, GoPro, has lost more than 90% of its value since peaking in early October 2014. It has struggled to earn back Wall Street’s trust. But fresh of its first quarter earnings beat, GPRO took an important first step. With CEO Nick Woodman beginning to tout the growth potential of GoPro’s products and contirbutions from business improvements, GPRO stock — down 6.9% year to date — appears to at have established a floor.
GoPro stock has risen as much as 31% since dipping to a 52-week low in mid-March. That, alone, is a strong answer to the question “has the stock bottomed?”. Still, while GPRO boasts one of the best brand names in consumer electronics, the stock may not regain investors’ trust overnight. Candidly, though, the risk-reward offered by the shares is now too attractive to ignore — particularly for investors with risk tolerance.
Can a Drone and New Software Fuel GPRO?
According to The Wall Street Journal, citing technology research firm Gartner, drone sales soared 55% in 2016, reaching an estimated $1.7 billion globally in 2016. There is seemingly no sign of slowing down. Consumer purchases of drones in the U.S. more than doubled in the 12 months through April, according to consumer research firm The NPD Group. Purchases are expected to surpass $3 billion in 2018 and reach $4.6 billion by 2020, according to Gartner.
Regardless of what you might think of GoPro’s history or its recent execution struggles, the company — thanks to its Karma drone products — is nonetheless in the center of a high-flying industry. The Karma, GoPro’s portable drone, and the Karma Grip, its handheld motorized stabilizer for GoPro cameras, should help do the same for GoPro’s revenues. Analysts expect GoPro’s revenue to rebound 13% this fiscal year.
Part of the recovery is based on the company’s ability to attract new customers, while retaining in old ones. To that end, the embattled electronics company also wants to expand its software ecosystem and aims to make the smartphone an integral part of the GoPro experience.
Not only does the camera maker want to make it easy for customers to transfer content from their GoPro device to their smartphones — whether Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) Android system or an Apple Inc. (NASDAQ:AAPL) iPhone — GoPro’s smartphone app has a feature that creates a video automatically for users.
Wise Move
Indeed, GPRO would much rather users buy its GoPro cameras, which are more versatile than its smartphone app. But the company is willing to sacrifice near-term sales to build and/or expand a platform (whether iOS or Android) that gives users a convenient way to manage and share content. And that move has already proven to be a wise one.
“Content sharing from our Capture App grew 43% year-over-year,” COO Charles Prober told investors last month. “We recently launched GoPro Plus, our subscription service, in EMEA and APAC, and we continue to see better-than-expected conversion from trial to paid with lower-than-expected churn.”
Combined with its Quik and Capture editing apps, GPRO is working to expand its software ecosystem, including its cloud backup platform GoPro Plus, which costs $5 per month. All told, the company is working to address common criticisms that its hardware and software are not user-friendly.
Bottom Line for GPRO Stock
Earlier this year, CEO Woodman admitted that the company’s profits are thin, though it now reports solid revenue. GoPro is eliminating some 270 jobs to improve profitability. Woodman also said that GPRO is on track to meet second quarter revenue guidance.
“We feel good about the second quarter, and we think that things are tracking just as we shared on our earnings call, and we’re really happy with the turnaround that we’re seeing in our business,” Woodman told CNBC on May 23. Based on first quarter results, it would seem that both the company’s business and product demand are on firmer footing. As such, GPRO stock — currently an ugly duckling — could be a second-half 2017 Cinderella.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
