Will GoPro Inc (GPRO) Stock Stay Suppressed In 2017 As Well?

Should investors hope for a revival in GoPro stock in 2017? Probably not just yet.

GoPro (NASDAQ:GPRO) shareholders are having a harrowing time. The company posted declining sales throughout the past year amid heightened market competition in its core, sports action camera business. This, coupled with the botched up Karma drone release, led to a near 50% drop in its share price over the past 3 months alone. Although the company has been making efforts to diversify its business model (such as the GoPro Plus launch in September, 2016) and unveiled its latest Hero 5 Black and Hero 5 session cameras, there is a reason to believe that its core camera business will continue to struggle during 2017 as well. Let’s take a closer look. 

What’s brewing at GoPro?

Let me start by saying that cameras have basically become a commodity business in today’s time. Companies such as GoPro, Red and Sony make use of electronic and optical components already available in the market, apply their proprietary image processing and compression algorithms, package the final media and deliver it to the end user as a media file. There is very little differentiation left at the hardware level and most companies are now competing on their color profiles, media capture resolutions, user interfaces etc.

This aspect is particularly visible with the rapid incursion of Chinese manufacturers in the segment. For starters, GoPro is known to use image sensors from Sony, application processors from Ambarella, wireless modems from Qualcomm, and lenses from unknown providers. The thing is, components from the same companies are now making their way into inexpensive Chinese sports action cameras as well.

Also Read: Should You Buy GoPro Stock After The Strong Holiday Season Sales?

I’ll cite one example: Xiaomi Yi comes equipped with a Sony image sensor and an Ambarella application processor. The specifications of these components might vary, when compared to the ones found in the GoPro Hero 5, but the fact of the matter is that Chinese manufacturers have started to use components from top-notch companies to compete in the high-performance imaging segment, at a quarter of the price.

A few other Chinese action camera makers such as Gitup, Xiaomi, SJCam use downmarket application processors from Novatek, but almost all of them have been procuring their image sensors from Sony. As a result, their image quality is now comparable to, if not better than GoPro Hero 5 cameras, at about one-quarter of its price. This impact is particularly visible in the quality comparison video I've linked to further in the article.

If this wasn’t enough, the aforementioned Chinese manufacturers are actively developing their products and releasing them on an aggressive timeline. For instance, Xiaomi Yi2 4K, FireFly 7S, SJCAM SJ6 Legend are some of the prominent down-market devices that were released less than 6 months ago. I suspect Gitup Git3 could be released in the first half of 2017, however, this would be pure speculation on my part. But the point that I’m trying to make here is that Chinese manufacturers are making sincere efforts to crack the high-performance sports action camera market at drastically lower price points. 

How will this impact GoPro financially?

With a flurry of inexpensive sports action camera launches, market competition in the segment is bound to intensify in 2017. Do note that these down-market offerings aren’t just competing merely on price, but rather on image quality as well. So it’s essentially a two-fold attack on GoPro’s market positioning.

With the Karma drone having its own set of recall-related problems, the last thing that GoPro needed was problems in its core sports action camera business. But unfortunately, it looks as if that’s what is going to happen going forward.

The aforementioned down market offerings are priced at about 25-30% of a fully loaded Hero 5, offer similar specifications and image quality, which makes them a compelling buy for new entrants in the field of action/vacation videography. I suspect GoPro would witness a market share erosion over the coming year due to this.

Also Read: Is 2017 A Go For GoPro Inc (GPRO) Stock?

To put things in perspective, GoPro reported during its Q4FY15 earnings conference call that it’s market share in the sports action camera segment stood at around 85%. So that should be the reference point for any potential market share erosion, from hereon.

The premium camera-maker can counter its down market Chinese counterparts by engaging in a price war, but that would further put pressure on it’s already stressed revenue and profit figures. So it would be equivalent to shooting itself in the foot. The only real options available to GoPro at this point in time, at least in my opinion, are:

  • Bundle a free GoPro Plus subscription with each camera purchase, to promote the sales of Hero cameras
  • Introduce a down market camera, essentially a Hero Session, but with an LCD display.
  • Roll out the GoPro Plus service for the rest of the world to promote GoPro camera sales internationally
  • Lock GoPro Plus down to Hero camera buyers only. That would create sort of a closed GoPro ecosystem, and Chinese camera makers would be left wanting.

Investor takeaway

It looks like GoPro’s struggles won’t be over anytime soon. Chinese sports action camera makers are upping the ante, coming out with truly competitive products at a fraction of the price and launching their devices internationally. Therefore, I suspect the increased market competition would hamper GoPro’s sales figures in 2017. The premium camera maker can counter its down market rivals by making a few changes to its product strategy, but until that happens, we can expect a market share erosion in GoPro's core business.

Looking for winning technology stocks? Check out our top stock picks, which have beaten the NASDAQ by over 111%.


Piyush Arora Piyush Arora   on Amigobulls :
Author's Disclosures & Disclaimers:
  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
Amigobulls Disclosures & Disclaimers:

This post has been submitted by an independent external contributor. This author may or may not hold any positions in the stocks discussed. Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. Amigobulls has not verified the author’s positions in the stocks discussed, and does not provide any guarantees in this regard. The author may be paid by Amigobulls for this contribution, under the paid contributors program. However, Amigobulls does not guarantee the authenticity or accuracy of the information provided by the author in this post.

The author may not be a qualified investment advisor. The opinions stated in the post should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

show more

Comments on this article and GPRO stock

user profile picture
danrogness
neutral
The author doesn't seem to have an understanding of GoPro and these cameras so it's hard to believe there is an understanding of the market. "Bundle a free GoPro Plus subscription with each camera purchase". This is exactly what GoPro is doing. It is true that after the 30-day trial the user can opt to continue by paying $4.99 a month, but it does come with the camera and provides a separate revenue stream if the user sees value in it. If people don't see value in GoPro Plus, bundling it with a camera wont matter as it wont add any value to the camera. However if they do, not only does GoPro Plus add value to the camera already, GoPro obtains additional profits with the add on revenue.

"Hero Session, but with an LCD display"....What? You want GoPro to put an LCD display on the tiny cube camera? Clearly you don't understand the advantages of the Session form factor. Besides that, the screen would have to be so small it would be virtually unusable.

"Lock GoPro Plus down to Hero camera buyers only"... GoPro Plus only works with pictures/videos shot with GoPro cameras. If this is what you mean by "Lock", it is. I guess it is possible to purchase a subscription without owning a Gopro camera but it wouldn't be of much use since only GoPro cameras auto upload to GoPro Plus and the desktop app Quik only uploads GoPro photos/videos.

As far as the cheaper knock offs. They might offer similar specs but they don't offer GoPro technology or features. None of the Chinese knock offs are waterproof cameras without a case. They also don't offer as GoPro does: GPS integration, voice activation, multiple video editors from simple to professional on multiple platforms, dedicated stabilizer that can be mounted to a drone, a hand held Grip, and a GoPro mount. There are other Gimbal stabilizers but not that charge the camera and allow you to start/stop recording and change modes.

GoPro has superior Customer Service and much more widely known market brand. Nobody ask someone using an action cam, "Is that a Yi?" or "Is that a SJCAM". Perhaps, down the road if GoPro isn't more aggressive in protecting their patents, GoPro will become like Xerox. There was a time when people would say, "I need to Xerox this document" instead of, "I need to copy...". However, GoPro has lowered their prices just enough to stay premium but to lower the gap between them and cheap knockoffs. There are cheaper cameras but there have always been cheaper cameras than brands such as Cannon, Nikon, Sony.. and yet these companies have dominated the market for decades. It's not the Chinese knock offs that threaten GoPro but rather these well known companies and outdoor/action companies like Garmin. Unless China can shed it'self of being known for making cheap products that don't last and providing sub-par customer service, GoPro will be just fine keeping them at bay.
1 2 reply
Do share this awesome post