GoPro Is Collapsing; But Don't Miss the Forest for the Trees
FundamentalsWritten by Ophir Gottlieb, 10-28-2015
GoPro (GPRO) just released earnings and was a disaster according to Wall St.
Revenue: $400 million vs. estimates of $433 million.
EPS: $0.25 vs. estimates of $0.29.
Forecasts for the next quarter were brought down substantially as well and looked for a 17% year-over-year revenue drop. GoPro blamed, among other things, under-funded marketing, and setting too high an initial price of a new product.
GoPro's board approved a $300 million stock buyback program, which will begin in the current quarter. Note that the company has a market cap of just $4 billion, so this is a rather large buyback. Finally, the company released footage from a prototype of its new drone (called the "quadcopter"), which the company says it will release in the first half of 2016 (Source: MarketWatch).
The success of the drone will be a key driver for GoPro as the mounting concerns over the firm being a one-trick pony are suffocating the stock.
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What Really Happened
GPRO actually grew revenue 43% but expectations were clearly much higher. In perhaps a rare moment of true candidness from a CEO, Nicholas Woodman said that the quarter was:
"clearly more difficult than anticipated."
Reuters reported that revenue from its Americas market fell 7% to $190.8 million. However, revenue from its international market nearly tripled to $209.8 million (Source: Reuters).
That Reuters article went on to read:
" the recent advancement in video-shooting capabilities of smartphones, such as Apple Inc's iPhone 6 range, is eroding GoPro's consumer base."
However, GoPro's CEO also showed optimism toward the holiday season:
"GoPro is entering the holidays with an industry-leading lineup backed by great software solutions and a globally-recognized brand. We are excited about our business and the investments we continue to make to scale GoPro into its next phase as a product, software and entertainment company."
Here is a chart of GoPro's revenue (TTM) before this quarter. If we add this quarter back into the trailing-twelve-months, it has made yet another all-time high.
This chart is hardly a disaster.
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The stock is plummeting and in after hours trading has traded as low as $25 handle. This from a stock which hit an all-time high of over $98. Here's an all-time stock chart.
The Company at Large
Let's not lose the forest for the tress here. GPRO has done something almost every other young technology company has not been able to do, and that's turn a profit. In fact, over any twelve-month period, the company has never reported a loss. Further, the company invented a new product category for cameras ("action camera").
While the company's execution has been excellent, driving annual revenue to $1.5 billion, fears have now crept in that AAPL could replace GPRO's products altogether with new features for the iPhone cameras. Those who dismiss this possibility note that GPRO's products are extremely durable, waterproof and essentially indestructible, all because the product's have only a (small) camera lens to protect, rather than an entire smartphone screen.
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GPRO has some amazingly compelling phenomena going on internally that we can examine through the fundamentals which surround revenue and earnings highs along with large R&D investment (expense). Further, on July 23rd, live video-streaming app Meerkat announced a beta program that enables some GoPro users to live-stream their footage directly from their GoPro device. Meerkat competes with Twitter's Periscope and the added capability adds a wonderful social dimension to GPRO. In fact, earlier this year, GPRO launched a streaming channel on the LG Smart TV app and signed a deal with Vislink to enable broadcasters to live-stream GoPro content during big events (Source: MarketWatch).
This social media angle to GoPro has created some swirling rumors that it may be a takeover candidate for Facebook, though much of Wall Street has dismissed this possibility, and likely for good reason. Other than Oculus, Facebook is not a hardware company.
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For now the fear that GoPro is a one hit wonder and will fade to competition is taking over the stock, which is now down nearly 75% from its highs. The future is unclear, but the present is very clear: The stock has collapsed to all-time lows as revenue has risen to all-time highs.
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