- GoPro stock has sold off by 15% since the second half of August.
- Ambarella earnings and iPhone 7 launch contributed to the recent decline.
- A lot is riding on the success of Karma drones and Hero Session 5 for GoPro stock.
On Wednesday, 7th September, in a high profile ceremony, Tim Cook, the CEO of Apple Inc. (NSDQ:AAPL) unveiled the new iPhone and the GoPro Inc. (NSDQ:GPRO) investors took note. While there was nothing very exceptional in the latest version of Apple’s flagship product, what concerned many GoPro stockholders was the durability (making it waterproof) and added functionality to the camera of iPhone 7. And many believed that it will impact the sales of the action camera maker as “waterproof” was one of the selling points of the hero session cameras. The stock tanked around 5% on the day of iPhone 7 release.
And then yesterday the stock tanked another 2.15% on the news of insider selling. The insider selling, just 2 weeks before the launch of the much-hyped Karma drones and Hero Session 5 camera did not inspire confidence among some investors. But all is not lost for the company. Most of the bad news is already priced in and a success of the coming launch can revive the fortunes of the company.
The Rough Ride
It has been a roller-coaster ride for GoPro stock since it listed in June 2014. After listing with much fanfare, the stock of the action camera maker, riding on the success of Hero Session cameras, tripled investors' money in less than half year. The stock had touched an all-time high of $93.85 in October 2014, barely five months after listing. But just as fast as the stock had risen, the decline was equally swift. The stock is currently trading at $13.58, more than 85% lower than its all-time high two years ago.
The main reason for the decline was the huge drop in sales and disappointing guidance. The revenues declined by 48% in the first six months of 2016 compared to same period last year. The action camera maker sold 51% less cameras in the first half of this year.
So what has resulted in such a drastic slowdown? There are many reasons. For one it had botched up the launch of Hero Session 4 camera last year. Secondly, GoPro has not launched any new product in the first half of this year, unlike last year when it rolled out its Flagship Hero 4 silver camera. However, the main reason is the arrival of cheaper alternatives. GoPro operates in a highly competitive environment where there are numerous action cameras at much cheaper price points.
The Recent Stock Performace
After rising more than 10% in the first half of August, on the back of reasonably good second quarter earnings, GoPro stock has lost its steam. The GoPro stock has sold off after Ambarella (NSDQ:AMBA)'s earnings and iPhone release. While Ambarella's earnings were good, its guidance was conservative. However, if you look at the part of the report which is more directly related to GoPro, the company expects strong growth in the wearable sports product division in Q3. Also, the company said that there has been strong build up in wearables going into the holiday season.
On the short interest front, there has been no respite either. While the short interest in the company has declined from the highs of January, when the short interest was around 44% of the float, it is still too high. The short interest for the period ending August 15th was at 30% of the float with days to cover coming in at 3.8 days, largely unchanged from the previous period. This builds up on the negative sentiments surrounding the GoPro stock. However, a successful launch of Karma drones and Hero Session 5 could change the sentiment and send the shorts seeking for cover.
A Lot Is Riding On Karma
For GoPro investors, a lot is riding on the Karma drone and the Hero Session 5 camera, an upgrade to Hero Session 4. This is the first major product launch for the company in more than one year (it had launched 360-degree cameras earlier this month but was for a niche segment). And it is imperative that the company does not botch this launch as it had done with the Hero Session 4 camera. There is a lot of interest around these products on the internet as well as within the analysts' community.
According to a report on Marketwatch, the drone market grew by more than 225% this year. And the holiday season saw strong demand. The sales in the last holiday season grew by an astounding 445%. So the fact that GoPro is launching its Karma drones just before the beginning of the holiday season should definitely help its cause. And the market is likely to continue its growth momentum. The market size for drones and the related products is likely to balloon to $127 billion from the current estimated size of $2 billion. That's a big jump. And considering the interest surrounding Hero Session 5 cameras, GoPro could improve its sales significantly if it is able to differentiate itself from the crowd and get the pricing right.
Lessons From Hero Session 4 Camera Debacle
Last year GoPro had launched its Hero Session 4 camera at a price of $400, making it out of the reach of many customers. Realising its mistake, the company slashed the price after few months by $100 and had to take a hit on inventory valuations. But this reduction was also not enough to push the product, forcing GoPro to slash prices again in December by another $100 and write off inventory worth millions of dollars. But this neither helped the sales nor the brand. Hopefully, the management has learnt a lesson from the debacle and will take the pricing decision more carefully. Another failed launch will be ruinous for the brand as well as the shareholders.
Also Read: Analyzing Bankruptcy Risk For GoPro Inc
The GoPro stock has been heavily battered. It is down by 60% in last one year. But a successful launch of Karma drones and Hero Session 5 camera on the back of successful earnings could turn the table for GoPro stock. However, considering the fact that a lot is riding on the success of this one event there is a lot of risk too. If you are a risk taking investor, the recent decline in the stock gives you a good opportunity to take a position in the stock.