Heading into GoPro’s (GPRO) earnings report this week, investors were hoping for any ray of light, any reason to believe the business is turning around.
We didn’t really get it.
Instead, management reported an adjusted EPS loss of 8 cents. The stock was halted after hours and fell down 20% to its lowest prices ever when trading picked back up again.
During the call, CEO Nicholas Wood noted that the one of the company’s goals is to improve its software to make it easier for users to edit content. But I don’t think that’s the only factor weighing on this stock — there’s a larger issue here with implications that could affect the entire tech industry.
Right now device makers are hitting a wall where innovation isn’t moving fast enough to motivate existing customers to upgrade their gadgets. We’re seeing this play out over at Apple (AAPL), where the handoff from the iPhone 6 to the 6s left sales stalling. Consumers who only want the latest and greatest are hanging on for the release of the iPhone 7, carving out a huge hole in the company’s revenue cycle.
GPRO Doesn’t Have Much Cause for Excitement
For GPRO, it seems that pretty much everyone who wants an action camera already has one. In other words, the market is saturated, and until there’s a compelling reason to pick up a new product like the Hero 4 camera, most people are happy with the gadgets they already own. The landscape has reached a plateau — unless GPRO can deliver that next step in the product’s evolutionary line.
The Hero 4 came and went under the radar, leaving a miserable 2015 holiday quarter in its wake. GPRO is saving Hero 5 for next year, but there’s a lot of dead time between now and then. In the meantime, until management announces something intriguing about its drones — or any new product to jump sales — GPRO is looking like a one-hit wonder.
The collateral damage of GPRO’s collapse extends to its suppliers too, like Ambarella (AMBA). I couldn’t help but notice that back in December, AMBA lowered guidance by 13% — exactly matching the amount of the GPRO sales decline. The companies were linked tightly in the holiday season, which makes me suspect that if GPRO’s sales are lackluster in 2016, AMBA is going to feel the pain, too. That could be crippling because AMBA is still relatively small, barely clearing $300 million per year on the top line to support a $1.2 billion market cap.
The only way for GPRO to reverse sales momentum is to really capture the attention of its consumers. Rehashing the ideas they’ve already put out won’t dig management out of this hole, and they’re not the only company in this sticky position. But no matter what GPRO comes up with this year, it’s going to take some time before we see even a semblance of recovery.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
