I’ve been a bear on GoPro Inc (NASDAQ:GPRO) for some time. But with the stock at rock-bottom levels, might there be a value opportunity? Or could a company like Apple Inc. (NASDAQ:AAPL) make a buyout bid?
Perhaps. But I still think there are notable risks with GPRO stock. They’ve already released preliminary results for the fourth quarter. And they were downright awful.
GoPro Is Failing, And Fast
The outlook for Q4 calls for revenues of about $340 million, off sharply from the consensus Wall Street forecast of $472.1 million. Despite the overall strong holiday season in the U.S., consumers showed tepid interest for GoPro models like the Hero 5 Black and Hero 6 (both of which suffered price cuts).
The irony is that — during the Q3 earnings call — CEO Nick Woodman was upbeat about his guidance! Here’ what he had to say:
“We’re actually feeling really good about our guidance for Q4. We’re really excited about how the year is turning out and, as Brian noted, we’re either meeting or exceeding most of the metrics that we laid out at the beginning of the year, of course most notably, double-digit revenue growth and profitability, profitability coming a little bit earlier than anybody expected in Q3, which is a solid win for the team.”
But there’s even more bad news for the company. GoPro announced it has ditched its aggressive move into drones.
Interestingly enough, during the Q2 earnings call, CEO Woodman boasted that his company’s Karma drone was the “nation’s number two selling drone brand.”
But he now thinks the business is a dud because of the tough competitive market and hostile regulatory environment.
So as should be no surprise, GoPro announced another round of layoffs, with the latest involving a grueling fifth of the workforce. There will also be a $33 million charge (largely because of severance costs) and Woodman has agreed to take $1 for his salary, down from $800,000.
GPRO Buyout Bait?
Now it’s true that GoPro has some attractive assets that could gain the attention of a suitor. Let’s take a look:
- Intellectual Property: Over the years, GoPro has developed cutting-edged technologies like image silicon processors, image sensors/lenses and advanced algorithms.
- Manufacturing: GPRO has put together a modern global supply chain, with major investments in Switzerland, France and China. This has allowed the company to flexibly scale its operations.
- Distribution: The GoPro products are in over 45,000 outlets across more than 100 countries. Some of its partners include Amazon.com, Inc. (NASDAQ:AMZN), Wal-Mart Stores Inc (NYSE:WMT), Target Corporation (NYSE:TGT) and Best Buy Co Inc (NYSE:BBY). GPRO has also been bolstering its own e-commerce platform.
- Social Media: There are 10.4 million followers on Facebook Inc (NASDAQ:FB), 13.5 million on Instagram and 5.4 million on YouTube. All this indicates strong customer loyalty and engagement.
Yet assets can diminish quickly. This is especially true for tech companies.
The Bottom Line For GoPro
The fact is that the GoPro brand is quickly being marginalized. As sales continue to decline, there will be fewer resources to improve products and develop next-generation technologies. Retail and wholesale partners will also be less willing to push GoPro offerings. It’s really a horrible downward spiral.
And yes, such a predicament is common for hardware companies. Just consider Nokia Oyj (ADR)(NYSE:NOK), BlackBerry Ltd (NYSE:BB) and Palm. Despite restructurings, these operators were unable to regain traction in the consumer market.
Even worse for GoPro, the wearable camera market does appear to be a niche. There is also the big time issue that smartphones from Apple and Samsung are adopting similar features — putting more pressure on sales.
In other words, even if there is a buyout of GPRO stock, it seems that there would not be much of a premium. The company just has too many problems right now.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.