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GoPro Inc: The Fad Is Over

|About: GoPro, Inc. (GPRO)
Summary

GoPro shares have been hammered recently due to missed Q3 estimates and misguidance about Q4 estimates expected to be shared Feburary 3rd.

Holiday sales only highlighted slowing growth as a new product cannibalized sales of an already popular camera.

A company that was once founded on innovation is now in desperate need of new ideas in order to restore supremacy.

Introduction

After an initial public offering of 35.76 per share, GoPro Inc (NASDAQ:GPRO) has climbed to a peak of 86.97 in 2014 while recently bottoming at 9.90 this past week. GoPro caters to a niche market, specifically the adventure seeking type looking to document their unique experiences. Unfortunately for GoPro, this market is fairly limited and has become overcrowded with other companies following their once innovative design. This can be noted through their slowing growth as well as the tough holiday season they recently underwent. Their current product line is also of considerable concern as it provides minimal room for growth. In this article I will examine the current state of the company as well as why I feel the GoPro trend is over.

Financial Outlook

Upon examining GoPro's financials, a typical growth story can be seen. In a mere five years, the company has jumped from $64 million a year in revenue in 2010 to almost $1.4 billion following 2014. The share price has followed this growth trend, giving investors almost 150% growth from its IPO to its peak. However, GoPro has been showing signs of slowing down as of late by missing estimates in quarterly reports. In Q3 of FY15, CFO Jack Lazar predicted a 56% growth in revenue, only to see the company miss by 13%. Furthermore in Q4, the company originally predicted a decline of 17% in sales. After a slower than expected holiday season, the company changed that estimate, announcing a forecasted 31% loss as compared to last year's Q4.

After this announcement, the company was downgraded by many firms. In a recent update, analysts at Zack's Investment research dropped GoPro to a sell. Furthermore, a consensus of multiple firms downgraded the target share price from $30 to $11. The current $11 target price would only represent a roughly 3.7% gain from the time of writing this article.

Simplistic Product Line

After taking a look of the company's product line, it can essentially be broken up into two categories: cameras and accessories. Beginning with the cameras, the company offers six total cameras, ranging from $129.99 to $499.99 depending on the quality. Taking a look at their most popular and entry level model, the "Hero" (priced at $129.99), you will find specifications similar to many cheaper cameras that can be found on websites such as Amazon. However the high-quality and reputable GoPro brand has allowed the company to succeed, despite their mark-up.

Next, I took a look at the variety of accessories GoPro has to offer. From various mounts to additional storage, the company really tries to cater to every possible use for a GoPro. The accessories allow consumers to essentially customize their GoPro to fit their needs, a very nice feature.

Now, the problem I have with the GoPro product line is not with the products themselves, but rather for the lack of growth opportunities they present. In September, the company announced the "Hero+" which attempted to bridge the gap between the entry level camera and their $300 product. Instead, this new model was a direct competitor to their $200 camera, the "Hero 4 Session", cannibalizing the sales of that camera during the holiday season. While this can certainly be attributed to a poor management decision, I see a greater issue growing.

Given an already small niche market, the number of consumers looking to purchase a GoPro is limited. With products already being sold for over 10 years, that market has grown even smaller. By that I mean, an individual GoPro customer is likely to purchase a singular GoPro with an additional few accessories to customize. Once they have the camera with the specifications they need, I believe it is unlikely they will spend any more money on GoPro products. GoPro's market is shrinking on them and instead of innovating to new ideas, they are holding on to an action camera with immense competition and no growth.

Conclusion

Overall, I feel that GoPro Inc. is at a crossroads. The original action camcorder has taken this company to greatness, but will take them no further. Sales are slowing to the point where they are now negative year-to-year. The product line lacks any new ideas and has only added miniscule features from their original products. Current market sentiment on GoPro is continually dropping and something must be done in order to bring life back to the share price. GoPro Inc. was founded on creativity and in order to restore their supremecy, new ideas must create new products to once again grow revenue. Until then, I fear this company will be fairly stable at the $10 per share range with minimal upside.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.