Betting on GoPro’s Turnaround Is the Easiest Way to Lose Money

Betting on a turnaround of a company can turn out to be a very fruitful investment if done correctly. However, choosing the right company for a speculative turnaround investment is equally difficult as it is rewarding. As a result, most people tend to lose money when trying to catch a falling knife.

Likewise, investors who are betting on GoPro’s (GPRO) turnaround will end up losing money. GoPro may appear cheap on fundamentals, but the company is slowly becoming irrelevant and increasing competition in the action camera space has further deteriorated its condition.

GoPro delays the launch of Karma

GoPro stock recently traded at $8.80, an all-time low after the company shared miserable first quarter results.
Sales dropped almost 50 percent yearly to $183 million, and its non-GAAP earnings plunged from a profit of $35.5 million a year before to a loss of $86.7 million. The company anticipates sales to drop in the range of 7 percent to 17 percent for the entire year, equated to 16 percent growth previous year and 40 percent growth in 2014.

The most inadequate statement throughout the earnings call was the postponement of its new drone Karma to the holiday quarter. However, it is not certain that the holiday season could aid Karma sales in the near term, but the postponement is not a virtuous thing. Reasonably, it is possible that the company might be delaying the launch of Karma because it does not know how to place the drone distant from the rest of the market.

Instead of having innovative features, GoPro either bumped into technical glitches or recognized that it could not compete against the drone king DJI Innovations.  DJI Innovations introduced its Phantom 4 drone two months ago. On the other hand, Apple has formerly introduced big displays for the Phantom 4 at approximately 400 outlets which could even create problems for GoPro.

The high end drone market is still at its infant stage, but it is growing at a rapid pace. There are already robust players in this segment, and more of them are entering the segment with various offerings. Apart from GoPro’s robust action-camera brand, it is very necessary that the Karma should have at least a few dominating features that place it at a position better than other rivals, and that is becoming gradually tough to achieve.

GoPro’s Karma will possibly have a follow-behind feature that permits the drone to fly and picture by its own while the operator climbs mountain and skis off cliffs. But some major drone manufacturers have formerly added this feature in their high-end drones.

With no new feature in sight, GoPro’s Karma is destined to be a failure as fell. GoPro will find it very difficult to compete against the existing drone companies, while its core action camera business is witnessing continued weakness. Therefore, I think GoPro is a falling knife that investors should avoid at all valuations.
Published on May 19, 2016
By Prudent Investor

Copyrighted 2020. Content published with author's permission.

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