GoPro Tanks 34% YTD: Is A Turnaround Possible?

The past couple of years has been a rough ride for GoPro, Inc. (NASDAQ:GPRO) and its troubles are far from ending. The leading manufacturer of the world's most handy camera and related accessories has seen its shares fall almost 34% year to date, underperforming the industry’s growth of around 6% by a huge margin.

The company’s underperformance, in part, can be attributed to repeated operational stumbles, multiple layoffs, decaying fundamentals and macroeconomic woes. The company has been grappling with sluggish demand for its Hero cameras amid stiff competition from lower-priced action camera alternatives.

Moreover, in light of the company’s dismal fourth-quarter 2017 results, the management anticipates its revenues to decline further in 2018 and incur a net loss for the full year.

Meanwhile, the Zacks Consensus Estimate for 2018 earnings has moved south over the past couple of months, from earnings of 4 cents to a loss of 37 cents. This indicates extremely bearish sentiments surrounding this Zacks Rank #5 (Strong Sell) stock, mirrored by eight downward estimate revisions versus none upward. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Factors Troubling GoPro

Of late, GoPro’s market share has been threatened by lower-cost alternatives from established industry players like Sony Corp. (NYSE:SNE) , Nikon Corp. (OTC:NINOY) and new entrants. For instance, the launch of Google clips — which has a 12-megapixel sensor and a 130-degree field-of-view lens — has enabled Alphabet (NASDAQ:GOOGL) to penetrate into capture devices market, thus pushing the level of competition a notch higher. Another such product having features similar to GoPro’s Fusion is Sony’s action camera RX0. We believe that increasing commoditization of action cameras is hurting the company’s premium brand image, and pressurizing prices and margins.

Also, high product concentration risk and product cannibalization are persistent demand issues, which are likely to drag down the company’s top- line growth in coming times, even as it strives to find explore revenue streams.

Price reductions have also affected the top line in recent times, despite strong marketing support for key products. Late in 2017, GoPro slashed prices for the Hero 5 Black and Hero 5 Session cameras. It also cut the price of its latest camera, HERO 6 Black, to $399 from $499. The constrained demand and price cuts are likely to impact the top line in the coming quarters as well.

Furthermore, in recent years, the company has struggled with multiple operational stumbles including product recalls and messed up launches. Also, the company is shutting its drone business. Not a long while ago, GoPro had hoped Karma would help revive the company’s fortunes and stoke growth for the beleaguered action camera company. Karma witnessed a roller-coaster ride, punctuated mostly by lows rather than highs, thanks to problems like production delays and recall of 2,500 units due to a battery issue.

Will the Stock Rebound Any Time Soon?

GoPro remains committed toward regaining its growth momentum, backed by its camera portfolio, a smooth distribution channel, and interesting products like Fusion. Fusion is a waterproof, mountable 5.2K spherical camera that the company launched last year.

GoPro is focused on intense restructuring, streamlining its supply chain and expanding its market. As a result, its significant investments toward its expansion plans in Asia, China and Japan and counter the aforesaid challenges might take some more time to deliver credible top-line growth.

For 2018, the company has a target to limit operating expenses to below $400 million compared with $476 million incurred in 2017. A large part of the reduction can be attributed to the company’s decision of exiting its drone business and reducing employee headcount.

The company’s turnaround efforts might yield results in the long run. But for now, it appears that investors don’t believe GoPro’s initiatives can outweigh soft demand and operational weakness that the company is struggling with.

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