GoPro Inc (GPRO) Dives After Analysts Question Strategy

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GoPro shares slipped by as much as 5.76% to $10.80 today during regular trading hours following a bearish report from analysts at Oppenheimer. Already year to date, the stock has tumbled by more than 40%, and shares are off even further from their 52-week high of $64.59 per share while hovering close to their all-time low.

So what’s it going to take for the action camera maker to regain Wall Street’s favor?

What’s the message?

In a report dated Jan 19, analysts Andrew Uerkwitz, Martin Yang and Paul Dean said they continue to rate GoPro at Perform and explained what they need to see in order to become more constructive on the company. They emphasized that it isn’t valuation, adding that even at current share prices, it still appears to be expensive. Instead, they want to see clarity into management’s strategy.

They said that so far, the message about what GoPro is and where it’s heading has been changing often. They also think it’s been “poorly articulated.” Management has said that they aim to transform the camera maker into media and/ or entertainment, but other messages in terms of strategy have emphasized the company’s action cameras and ability as a content enabler. The Oppenheimer team wants to know which of these messages is the correct one.

What about the GoPro brand?

They also reminded investors about the competition—something bears have long been worried about as rivals like Xiaomi release less expensive action cameras. They think GoPro is in danger of being squeezed out of market as competitors seek to turn themselves into the “‘GoPro’ of fill-in-the-blank.”

While bulls see promise in drones, as the company is planning to release its first quadcopter this year, the Oppenheimer team includes drones in this area of concern. They also see 360-degree video—another favorite area of bulls—plus life logging and content editing as being areas which are ripe for entry and potential domination by competitors.

A related issue is the company’s brand, which the analysts do not think it is leveraging fully. They expect the market will keep shrinking and then bifurcate into niche and professional segments. At this time, GoPro has monopolized the action or point-of-view video segment, but they think that as new markets come up, it should move fast to get into them and focus more on “new experiences” rather than replacement cycles.

Not all are bearish on GoPro

Of course for every bear argument we have the bullish side, and in a post on The Motley Fool, Steve Symington argues the bull case. He thinks this year will be GoPro’s best year yet even though 2015 was brutal. For example, he likes the company’s opportunities in drones even though bears think it is a latecomer to the market. He says it can leverage its brand and current distribution networks and notes that management has promised a “unique value proposition.” He sees the potential for $480 million in drone revenue this year alone.

After arguing the usual bull cases in future camera models and media, he seems to suggest that GoPro is on the stock pick list of Motley Fool cofounder David Gardner and CEO Tom Gardner—two of the most prominent and successful growth investors on Wall Street. He said they’re going to release that list on Friday.

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