For a company that was once referred to as 2014’s sexiest IPO, thing’s aren’t exactly looking great for GoPro. When the action camera maker burst onto the scene a few years ago it’s products were nothing short of revolutionary. It resonated with a generation that idolised capturing and sharing their experiences online.

But it’s share price has for lack of a better term, tanked.

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NASDAQ: GPRO historic share price to 21st April 2017. From a high of $86.97 in October 2014 it is currently trading at just under $9. That’s a drop of about 90% value in less than 3 years.

GoPro’s latest 2016 forth quarter earnings paint a very ugly picture. Demand for their action cameras are declining and revenue growth is slowing. Despite releasing several new and updated products, first quarter 2017 sales are only expected to grow at a very modest 9%.

Over the past few years the action camera market has seen saturation from competitors. Whilst GoPro’s cameras have a strong reputation and loyal following among customers, it’s becoming evident that there is simply not enough product innovation and justification for them to upgrade to each year’s newer model.

Dare we also say it, but perhaps the action camera fad has begun if not already faded. GoPro was originally designed to capture images and video when undertaking extreme sports. But perhaps now the mainstream consumer is beginning to realise they don’t have enough action in their lives to justify dropping $500 plus on a new camera.

GoPro has also had a few failed attempts to diversify out of cameras, including the delayed and disappointing entry into the drone market with “Karma”. Launching last November, Karma was only on the market for 16 days before it was recalled due to a hardware issue.

Although Karma was re-released in February, for the company to recall just before the holidays was an utter disaster. For companies such as GoPro the holiday season is critical and typically drives much more revenue than any other quarter in the year.

And further attempts for the company to position itself as a paid cloud based storage service for users to upload and access their footage from anywhere has also met with a lackluster response.

But interestingly history repeats itself. Only a few years ago we saw a similar story with Fitbit.

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Like GoPro, early investors had once lofty expectations of exactly how big the wearable fitness market was. And like we’re currently seeing with GoPro and the action camera market, the wearables market simply wasn’t as big as investors once thought. It’s share price too went south once reality sunk in.

 

Can GoPro recover?

Although the stock has bounced recently, this has been as a result of cost cutting. In pursuit of profitability, GoPro made significant cuts to it’s workforce to make up for the lack of sales. However it doesn’t solve the underlying problem for the brand.

Gopro faces massive headwinds. The problem with companies like Gopro and Fitbit is that they need to throw money at product development and marketing to keep coming up with constant innovations to stay relevant.

GoPro announced late last week Fusion, a new 5.2k spherical camera that is designed to capture high definition virtual reality for release later in the year. As cool as this is, virtual reality is a still a relatively new technology with significant entry costs for consumers. So one would question whether your average consumer would have the means to actually play what they’ve recorded back  (however remember that when GoPro released it’s 4K HERO3 camera back in 2012, most people didn’t have 4k televisions). GoPro are placing a massive bet on the general adoption of VR. Given how much pressure is on the Fusion to succeed, we hope for the sake of GoPro that virtual reality becomes mainstream.

Also in an effort to boost sales and have existing customers upgrade to the next model, GoPro have announced a camera trade-up program. GoPro will offer money off a new camera if consumers trade-in any previous-generation GoPro camera – working, dented or completely broken (unfortunately as usual us Aussies miss out, this is only a promotion in the US).

It’s actually a smart move. Why? It’s likely to have minimal financial impact on GoPro’s margins. Because the offer is only available directly through the website GoPro are probably still getting higher margin then if it had sold through one of their retailer re-sellers. Secondly, as more people upgrade to new cameras they’re more likely to use the $4.99 a month subscription service.

However older GoPro model camera’s still have a high resale value. So GoPro owners are likely well aware that they could probably receive a far greater sum by selling their devices on a secondhand website like eBay or Craig’s List.

We’ll be eagerly watching GoPro’s first-quarter earnings when they’re released this Thursday.

Author Trent Rigby

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