Will 2017 be anything different for GoPro Inc? Here's what, you should know before you make a move for GPRO stock.
- 2017 is a make-or-break year for GoPro after it failed to successfully expand its core offering last year.
- GoPro share price is down more than 50% in last one year, but is it too risky to call this 'the bottom'?
- Increased competition from Snap Inc. and advancement of smartphone cameras provide the biggest threat to GoPro’s future.
It is safe to assume that 2016 is a year that GoPro (NASDAQ:GPRO) and its investors would want to forget. GoPro’s share price tumbled more than 50% in 2016 not least because the company was unable to meet analyst sales expectation for its products – mainly action cameras – and its push to expand beyond its core business of action cameras were somewhat unsuccessful. While, the price trend and increasing level of short interest point toward more downward pressure in the near-term, there are three key things to look out before deciding to expose your portfolio to GPRO stock.
So, many investors are speculating that 2017 represents a make-or-a-break year for the tech company to prove whether it’s first mover advantage in the action-camera market is finally out of runway as competition heats up or whether the woes of 2016 was the ultimate wake-up call. Albeit an expensive wake-up call, the company needed to get back to focussing on its core business after diverting its attention to the somewhat unprofitable entertainment division. (See Also: After Losing Half Its Value, Is GoPro Inc (GPRO) Stock Still A Buy Going Into 2017?)
GoPro HERO 5 & Karma Drone – GoPro’s Marquee Products to the Rescue?
Much of GoPro’s recent woes have been attributed to the performance, or lack thereof of its drone device, ‘the Karma’, which was expected to energize the company’s top-line growth as it was released in time for the holiday season but was promptly recalled following mechanical failures.
More importantly, a move into the drone market was seen as a reasonable avenue to diversify its revenues and expand its offering beyond its core business of action cameras, as the drone market is expected to surge to $4.2 billion by 2025. Fortunately, the release of GoPro’s Hero 5, a product in its action camera segment, which generates the majority of the company’s revenues appears to be showing robust performance.
Based on internal data, GoPro’s Black Friday camera unit sales was up more than 35% year-over-year at leading U.S. retailers. Thanksgiving through Cyber Monday sales of camera units at GoPro.com was up approximately 33% year-over-year.Whilst this is encouraging, many speculate that the company will fail to meet Q4 sales projection, as supply issues have caused production to stall in what is a critical sales period. Revenues for Q4’16 are expected in the range of $600-650 million.More importantly, investors eagerly await developments concerning the re-launch of its Karma Drone, after CEO, Woodman, revealed that the ‘root cause’ had been identified and resolved.
Restructuring Plan Under Way
When top-line performance comes under pressure, the go-to strategy for most management teams is to focus efforts on restructuring to drive efficiency and GoPro isn’t any different. GoPro announced a company-wide restructuring that will reduce full-year 2017 operating expenses to approximately $650 million and achieve its goal of returning to profitability in 2017. This ambitious restructuring plan includes the closure of its entertainment division, facilities reductions, and the elimination of more than 200 full-time positions (approximately 15 percent of the company’s workforce).
Lights, Camera, Competition
Competition is a real concern for GoPro, although its international brand recognition and Intellectual Properties provide it with a semblance of defense. Competition is increasing as new entrants like Snap Inc. as well as the technological advancement of smartphone cameras provide the biggest threat to GoPro’s future.
Leadership and the ability of management to execute successfully will be heavily scrutinized as the failed and costly attempt to turn GoPro into a lifestyle brand and move into entertainment industry has given investors real cause for concern.
A 50% slump in the stock price may fool many into calling ‘the bottom’ and mark this as a buy-low-sell-high opportunity. However, investors would do well to wait for the Q4 report to establish whether GoPro is on track to meet its restructuring goals, the re-launch of Kama Drone, and the efficacy of management’s plans to expand its core offering as competition is set to intensify over the next few years.
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