Drone Rules Put The Final Nail In The Coffin For GoPro

| About: GoPro (GPRO)
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Summary

GoPro has frantically been looking for a pivot after its cash cow camera business died.

GoPro has tried software and drones, but neither are working.

Drone rules are extremely limiting, and enterprise scale drones are not possible.

Consumer market is nowhere near large enough to sustain a $100 million a quarter loss.

The Department of Transportation and Federal Aviation Administration put the final nail in the coffin for GoPro(NASDAQ:GPRO) on June 21, with the announcement of severely restrictive drone rules. Drones may not weigh more than 55 pounds and have to remain within a pilot's line of sight. Pilots must also have a remote pilot certificate, and also be over 16 years or older.

As you can see, this is tremendously restrictive in terms of commercial usage. The drones envisioned by Amazon, fleets of small drones flying small packages to people who need deliveries quickly will not be happening. With the need for a single pilot keeping an eye on the drone itself, with line of sight no less, drones will be a lot more manpower intensive than thought before.

Drones were always more of an enterprise product than a consumer one, as the delivery and transportation aspect always seemed quite exciting. Consumer usage is still available, as the Department of Transportation and Federal Aviation Administration rules specifically carve out a niche for hobbyists to use. However, I believe this is an extremely limited market. Drones have been around for decades as a children's toy, and even the more advanced models with expanded functionality, faster speed, and larger batteries and the like, still seem distinctly toy-like.

For GoPro, drones were possibly their last chance out of the hole of overbuilt operational leverage in terms of building an infrastructure for the sale of GoPro cameras. GoPro has built out a cost structure that is simply unsustainable after that they extrapolated infinite growth out into the future. Now that they have hit a wall in demand for their Now they are losing $100 million a quarter, and I believe the sales decline is nowhere near finished.

In fact, Samuel Harrison just recently wrote a great article about how GoPro's attempt to integrate software into their lineup has failed miserably as well. Essentially, GoPro's apps had a great swell of activity at their launches but then, as time went on, user engagement fell off of a cliff.

This is not to mention the problem with monetization problem that GoPro has with the apps. There really isn't any path to making money off of the apps that GoPro bought, maybe as an auxiliary support system for GoPro cameras, but GoPro spent literally $100 million on the two companies that it bought.

It seems that there is no way for GoPro to dig itself out of its hole. Drones were hailed as the next step for GoPro, but this seems impossible now. GoPro tried to pivot, but there is just simply no market, or at least not one anywhere near big enough to earn $100 million dollars a quarter in profit. GoPro is down and out,

Disclosure: I am/we are short GPRO.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.