GoPro Inc (GPRO) Recent Stock Slump; Time to Abandon Ship?

GoPro Inc (NASDAQ:GPRO) made a couple of disappointing announcements yesterday that wreaked havoc for its stock. The shares nosedived 25% in after-hours trading after news emerged that the company will slash roughly 7% of its workforce on the back of disappointing holiday sales. Furthermore, the management also provided revenue guidance for the fourth quarter, which was well below the Street’s estimate.

Since the start of the New Year, GoPro shares have declined 18% in the first 12 days, and this latest drop in value comes on the back of a horrendous 2015, where the stock for the company declined a staggering 73%. Yesterday’s slide has pushed the stock price down roughly $10 from its IPO price. The IPO price was set at $24 back in June 2014 and the stock closed at $14.61 yesterday. To get a better comprehension of how far the stock price has fallen, one needs to consider that soon after its debut in 2014, the stock had soared to $90 in fall 2014.

While trimming down the workforce might come as a surprise to most, but the downward adjustment in the revenue guidance for the fourth quarter would have hardly startled anyone. Given the spectacular failure of its latest action camera model, the Hero4 Session, the company warned that it expects revenue of $435 million as compared to analysts’ consensus of $511 million.

Such was the magnitude of the disappointment associated with the Hero4 Session that the management had to make a couple of price reductions just to spur sales. In a written statement, the company announced that the price reduction has cost the action camera maker $21 million and an additional $35 million in inventory write down.

The cut in the workforce, which roughly translates to 100 jobs, might not seem a lot on the surface but in totality, it paints a stark picture for the American action camera manufacturer. While it is not known what jobs will come under the firing line but it would be fair to assume that the action camera division might take the brunt of it. This point is further validated when you consider the efforts directed towards drones and virtual reality by GPRO. A recent outing at the Consumer Electronic Show (CES) 2020, points towards a change in strategy for the company, with the main focus being towards drones and VR.

Karma, the first drone by GoPro, is scheduled to be released in the first half of 2020, and its VR video development is progressing rapidly. Analysts and industry experts who got the chance to experience its VR video using Facebook’s Oculus headset gave admirable reviews. It seems the action camera maker is in the prime position to gain a strong foothold in VR video development and should focus most of its resources towards this segment.

The million dollar question that now arises is whether the drones and VR businesses will be enough to pull the company out of its current rut. While the initial feedbacks are encouraging, it still does not make it a sure thing that once the drones hit the market, customers will be lining up to buy them. Given the drone market is still in its infancy and numerous companies are coming up with their own versions, the Karma would have to offer value for money in order to have an impressive debut. Customers would be hesitant to dish out huge sum of money for a product which fails to delivers superior capabilities and features than those already available in the market. This would be the worst case scenario for GoPro, as it cannot afford to have another failure like the Hero4 Session.

The VR technology has been on the rise recently but it is still miles away from actuality. While enormous potential is available for GoPro if it makes enhancement in this business, but to say it will get it spot on from the get-go would be a little farfetched.

Things keep on going from bad to worse for GoPro and with no immediate respite in sight; it seems 2020might just turn out to be a make-or-break year for the company. It might also be the year where it functions as an independent company. With the share price reaching bottom level, it would be very easy for a big company, as the likes of Apple, Google, and Microsoft to sweep in and acquire it. GoPro still has a loyal brand following and is still credited as being the pioneer of the action camera market. Low acquisition cost coupled with other factors makes it an attractive acquisition target.

GoPro is scheduled to announce its full-year earnings for fiscal year 2019 on February 3, 2020. Investors and industry experts will be keeping a close eye on what numbers the company reports and any adverse revelations in the earnings report will potentially cause further mayhem.