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Why GoPro Shares Are Up-Ended So Easily

GPRO stock - Why GoPro Shares Are Up-Ended So Easily

Source: Shutterstock

On the surface, the drubbing GoPro (NASDAQ:GPRO) took on Wednesday makes no sense. Yet, there it is. On Wednesday, the action camera maker merely announced when it would be posting its Q2 results and GPRO stock lost a hefty 8% of its value.

What gives? Several possibilities, one of which is the possibility that someone knows (or someone thinks they know) the kind of second-quarter numbers the company will be reporting … and they’re not thrilled about them. Or, perhaps the selloff was already taking shape, and going to unfurl no matter what.

Of course, the reason for the setback may be irrelevant now that the bears got their ball rolling.

GPRO Stock: Broken Stride

For the record, GPRO stopped bleeding early on Thursday, cutting Wednesday’s steep loss by a hair. Clearly the market wasn’t that concerned about its apparent knee-jerk assumption.

Maybe investors were relieved to hear the news GoPro released after Wednesday’s closing bell rang. That is, since debuting its Hero series of action cameras back in 2009, the company has sold more than 30 million of them as of the second quarter of the year. The latest model, the Hero5 Black, has become the company’s best-selling camera in record time since its launch in late 2016.

That’s impressive enough.

One can’t help but wonder, however, if the unprompted post-close press release about the Hero camera’s lifetime sales is a deliberate effort to avoid talking about last quarter’s sales in particular … a much more meaningful data point for current and would-be owners of GPRO stock.

Whatever the case, it’s telling — and alarming — how quickly the weakness developed. Worse is that the selling broke the stride of what was becoming a respectable recovery rally.

The chart below speaks for itself. GoPro shares had gained 58% from their early April low, crossing back above all of the key moving average lines in the process. A bit of hesitation on Monday and Tuesday, though, sparked just enough concern to pull the rug out from underneath GPRO stock on Wednesday. In one fell swoop, shares were back under the 20-day moving average line.

Source: ThinkorSwim

Thursday’s bounce was relief, but not yet enough to get shares back above that short-term moving average line.

It’s Still Just a Camera

If we’re being intellectually honest though, at least part of the damage done on Wednesday has to stem back from a bigger, more meaningful reality. That is, revenue has been shrinking since 2015. The company has only reported one profitable quarter since then, and it wasn’t able to maintain it in the meantime. Meanwhile, the GoPro brand hasn’t become more prolific. If anything, it has become less interesting as action-camera-mania continues to cool.

In that light, the decision to tout the total number of Hero cameras it has ever sold rather than discuss Q2’s tally in detail looks even more like a diversion.

Let’s also not forget that for all the self-congratulating GoPro dished out yesterday, analysts still expect sales to continue dwindling this year. The company is also still expected to book a loss, albeit a smaller one.

Yes, those same pros are calling for a breakeven next year. They’ve not made the compelling case for how or why GoPro will be able to drive its anticipated sales growth or make margin progress though. Much like the iPhone from Apple (NASDAQ:AAPL), the marketable improvements from one camera to the next are getting smaller and smaller.

But is the Hero5’s success evidence that GoPro has finally found the intersection of demand, pricing, marketability and salesmanship?

Maybe. Let’s not forget, however, that the Hero5 has also been heavily discounted of late. It would be surprising if the Hero5 Black wasn’t its best-selling camera. The question is, can it sell more cameras at a higher price? So far, it doesn’t appear the company has been able to.

Bottom Line for GPRO Stock

Admittedly, GPRO stock had yet another brief bout with greatness. Like all the rest though, this one’s withering away pretty quickly.

Like it or not, the underlying flaw I pointed out with GoPro as far back as a year ago still applies. I argued then that “GoPro has yet to convince anyone that it’s going to muster meaningful growth at any point in the next fifteen years.”

As it turns out, the action camera market just isn’t all that big. Leading that market isn’t enough in and of itself to make the company profitable … no matter how many Hero cameras it has sold.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.

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Article printed from InvestorPlace Media, https://investorplace.com/2018/07/why-gopro-shares-are-up-ended-so-easily/.

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