The GoPro Knife Will Keep Falling

GoPro (GPRO) is one of the most high-profile examples of how underwriters and insiders rob normal investors of their money. Despite the company’s unsustainable, fad-based business model, analysts were bidding up their price target for GoPro in 2015, also despite the stock’s massive post-IPO rise.ow the GoPro bubble has burst. That being said, I still believe GoPro has significant downside to offer and I reckon investors should not try to catch the falling knife and sell the stock.

Now, the GoPro bubble has burst. However, I still believe GoPro has a significant downside, and I reckon investors should not try to catch the falling knife and should sell the stock.

Rising Competition

GoPro’s stock was down over 50% in 2015, and is off to a terrible start this year as well.
GoPro is all set to launch its new drone – Karma. Karma is yet to hit the market but has already run into several troubles. The drone market has transformed considerably as compared to the time when GoPro publicized that it would be entering it. Once more, frequent delays are putting the company in an unfortunate condition.

The customer and viable drone market has massive potential for companies that can achieve a strong position in the growing drone market. But, as the technology becomes inexpensive and handier, plenty of Chinese companies have moved into the drone market, which has resulted in an enormous downfall in drone pricing throughout the last few months.

These small Chinese companies are delivering short-term pain to major companies in the form of low margins and conceivable losses in return for long-term achievement from a solid foundation and place in the drone market.

Drone king DJI, a Chinese drone manufacturer, accounts for approximately 70 percent of market share and has specified its alacrity to shrink margins in order to maintain its leading position in the drone market. Furthermore, Xiaomi has formerly bashed off the GoPro Hero camera. Apart from this, Xiaomi is also about to launch its new self-manufactured drone in the upcoming few months. According to the early reports, Xiaomi will sell its new drone for around $100 while providing a lot of exciting features.

DJI is working on a drone which features live streaming to mobile devices, 4K video, select and avoid technology, and much more. While DJI is working on this perfect type of drone, GoPro has postponed and not launched its own drone that is not likely to propose as many features compared to the DJI’s prevailing drone models.

DJI has the capability to decrease its products price to match with GoPro or even less than GoPro mainly due to its massive scale and superior product, something that could hurt the company’s sales from the day of launch.

Conclusion

GoPro is a falling knife, and I strongly believe it will keep falling for the rest of 2016. The company’s potential in the drone market is non-existent, and its core business is already showing signs of struggles. It would be wise for investors to sell, or even short sell GoPro, at the current levels.
Published on Apr 7, 2016
By Prudent Investor

Copyrighted 2016. Content published with author's permission.

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