What Lies Ahead For GoPro Inc (GPRO)?
Investors of GoPro Inc (NASDAQ:GPRO) slowly deserted the company dragging its stock to a low of $9.01 after the announcement of the fourth quarter financial results. For instance, about 25 hedge funds had positions at the end of the third quarter last year. This dropped to 18 in the December quarter and now only seven hedge funds have the positions. This suggested the sentiments towards the bearish trend. However, there appears to be a few things happening that make the stock an interesting one. In the last one month period, the stock surged 48.3% and at one point of time climbed 64.7%. It could not have been possible without some favorable news changing the sentiments of the investors. Therefore, let’s look at the road ahead for the company.
Victim of High Expectations
One of the primary reasons GoPro Inc (NASDAQ:GPRO) stock suffered was the high expectations, that could not possibly be met. It was quite evident when its shares were trading at a very high premium of more than 200 times of its price to earnings ratio, of its peak price. On the other hand, the broader index, S&P 500 managed PE of only around 18.6 times. For its part, the management also played its role in dragging down the stock. For example, its CEO, Nick Woodman and other pre-IPO investors has sold $797 million worth of stocks through a follow-on offering at $75 per share. There were as much as 69 insider transactions following the IPO thus creating doubts among the genuine investors.
However, GoPro Inc (NASDAQ:GPRO) seemed to have understood the issues that it faced and has been taking steps aimed at reinventing itself. One among them was the identity issue and the recent clarification by Woodman that he would prefer the company to be a leading activity-capture firm rather than being called as an action-camera company. Aside from that, the wearable camera firm also struck a patent licensing deal with Microsoft Corporation (NASDAQ:MSFT), which buoyed investor confidence. The agreement involved ‘some file storage’ and other technological systems. This apart, the company has also been taking other steps to improve its performance. For instance, it acquired two firms most recently that should help in the long-run.
Shift towards Software
GoPro Inc (NASDAQ:GPRO) made an announcement during the recent Morgan Stanley (NYSE:MS)’s Technology, Media, & Telecom Conference that it acquired two startup companies, Stupeflix and Vemory. It spent about $105 million, buying these two start-up firms. Both were said to be engaged in mobile editing software applications. That suggested a clear shift towards software from hardware, at least, to some extent if not completely. Also, these acquisitions might turn out be the company’s future backbone in respect to the mobile app efforts and the deliverables as the smart devices are gaining traction more and more in different fields.
This means GoPro Inc (NASDAQ:GPRO)is betting on the new software, Splice, and Replay, to push its financial numbers in the coming quarters or years. This might sound like BlackBerry Ltd (NASDAQ:BBRY) turning towards software from hardware. However, it would be a different issue for the wearable action camera maker. The company is well aware that it would be tough to convince consumers to upgrade products every time they upgrade. Therefore, it opted to provide the software updates that cannot be ignored. Though the shipment might have been below the expected levels, it isa fact that it could deliver 27% growth in shipments to 6.6 million units in 2015. That took the total cumulative units sold to more than 20 million. As a result, these twenty million users need to upgrade their software whenever the wearable action camera maker comes up with them.
Enhancing Overall Experience
GoPro Inc (NASDAQ:GPRO) CEO took the opportunity of the conference to spell out in detail its approach towards enhancing the complete experience of the user. For that purpose, Woodman would commence making it simpler to establish presentable movies with the help of footage from either the pocket-size action cameras or the smartphone. In a nutshell, Splice and Replay, is another method of putting the products in the new users’ hands. Woodman said that it needed to be contemporary to deliver consumers the same experience that they are enjoying with their smart devices currently. He pointed out that its camera could express but needed some efforts to offload the content and edit it before sharing it.
GoPro Inc (NASDAQ:GPRO)’s Woodman also indicated that the two brands would be rebranded with its name. This is meant to project them as low-cost-entries. That is because it fits well with the objective of making the users to depend on and trust its editing capacities so that it would lead them to upgrade the experience by acquiring a camera. At the same time, the company also understood the need to stay invested in its hardware following the non-too-impressive sales number of the cameras in the holiday-season that dominated the fourth quarter.
Other Key Factors
Aside from the software and hardware, the first half of the current year would be crucial for GoPro Inc (NASDAQ:GPRO). That is because its drone product, Karma, is slated for a release and another fresh desktop editing software known as ‘GoPro for Desktop’ would be unveiled before the end of the first quarter. The company also entered into a tie-up with Apple Inc. (NASDAQ:AAPL) on Alphabet Inc (NASDAQ:GOOGL)’s Google brand leader board, which is a measurement of brand ad firms with popular content on YouTube. It has also partnered for virtual reality with Google, Facebook Inc (NASDAQ:FB) and others.
There is no doubt that GoPro Inc (NASDAQ:GPRO) has taken some positive steps. The coming quarters or years would see the result of its shift towards software and the alliance with other tech firms. The recent efforts might call for a rethinking on the company’s stock. However, the recent spurt in prices has put the valuation higher than the S&P 500 and the industry. Therefore, it would be better to wait for the realization of the gains of its recent steps before considering entering the counter.
Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.
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