- GoPro stock tanked after several reports indicated that the company is facing supply chain issues.
- A delay in shipment of the product will allow competitors to expand their market share.
- Wait for earnings to get into the stock.
GoPro stock has continued to show wild swings with the stock tanking more than 7% on Monday after several reports indicated that the company may be facing supply side issues with its recently launched flagship products, Hero 5 camera and Karma drone. GoPro unveiled these two products back in September with much fanfare. The Hero 5 was available for retail sales since October 2nd and Karma drone has been available for shipment since October 23rd. But many reports indicate that GoPro may not have enough inventory to take new orders, which is not a good sign for investors. On the positive side, the initial demand for the product seems to be strong.
The Pricing Problem
GoPro has started shipping Hero 5 cameras since October 2nd. And already there are reports about supply chain problems. The first alarm was raised by Piper Jaffray’s Erinn Murphy, who expressed concern that GoPro is not selling on Amazon (NSDQ:AMZN), which contributes 12%-14% of GoPro's sales. Murphy said that she was "incrementally concerned" about GoPro hitting the guidance.
“Nonetheless, this is a disruption of a key partner that we believe was not contemplated in guidance and we will continue to monitor the progress of this channel partner into the Holiday season,”
However, other analysts are not so concerned about this disruption, as they believe that GoPro may have intentionally stopped the supply over "pricing" issues. Also, GoPro is expected to resume its Hero 5 supply to Amazon before the holiday season, mostly within a week or two. To quote Dougherty & Co.’s Charles Anderson:
GoPro tells us that they are doing this because of their displeasure over how its products were priced on Amazon recently (like many consumer electronics brands, GoPro gives its retailers certain guidelines on how products can be priced). Because retailers like Best Buy (GoPro’s No. 1 customer most quarters) now price match Amazon.com, the integrity of retail pricing is extremely important.
But it is not only the supply to Amazon which has been disrupted. According to other reports the supply on other retail channels such as Best Buy is also thin. According to Longbow research, its availability checks for Hero Session 5 camera shows that supply is low. Further, it says that retailers have received "few stocks" after the initial launch. Many claim that the availability issues show strong demand for the Hero 5 camera and hence should not be a cause for worry. But strength in initial demand was expected, as Hero 5 was GoPro's first major launch since the Hero 4 Session camera a year back, which wasn't exactly a superhit product. GoPro should have prepared for it. Long delays in delivery can result in loss of customers which GoPro can't afford at present. (Also Read: Should You Buy GoPro Inc Stock After The Karma Launch?)
No Instant Karma
Earlier this month, when DJI reported that it had delayed shipment of its 'Mavic' drone due to massive global demand, it faced a severe backlash from customers who had pre-ordered the drone and had to pay the full price in advance. In late September, DJI has announced that they would be launching their new drone 'Mavic' on 15th of October, pre-empting Karma by a week. GoPro stock tanked on the announcement. However, news of the delay in shipment of Mavic gave GoPro investors some reasons to cheer.
But recent news is not good on the Karma front either. While GoPro's primary retailer shows that certain configurations are available for shipment soon or by mid-November, GoPro's site shows the shipment date to be 28th of November for new orders. And that's only in the United States. In many other regions, its still not available for order. November 28th is too late into the holiday season. If DJI is able to sort out its supply mess, then it can expand its market share ate the cost of GoPro. And DJI has already started shipping the pre-orders. Also, even if the Mavic issue persists, there are other DJI models, such as the Phantom, which are available for shipment, and can impact Karma's sale. It is not just Mavic Vs Karma.
The recent commentary about GoPro has not been encouraging. Supply side issues concerning the Karma drone and Hero Session 5 will be major headwinds going into earnings. While there are no official numbers, anecdotal evidence suggests that the demand for the product is strong. GoPro stock continues to be a risky bet and investors should avoid the stock going into the earnings. But it is also very risky to short GoPro stock considering that it can move violently in both the direction. Investors must also avoid shorting the stock, as a strong outlook may lead to a short squeeze pushing the stock higher. It will be wise to wait till the Q3 earnings to decide further course of action.
Also read: GoPro Stock Is Down But Not Out