The GoPro (NASDAQ:GPRO) brand is synonymous with action cameras as the Nick Woodman-led company essentially created this market by launching the first commercially available action camera back in 2002. GoPro has come a long way since then as its technology has grown by leaps and bounds.
For years, a smart marketing strategy that relied on user-generated content to boost customer engagement made the brand incredibly popular with sports enthusiasts, adventure junkies, or anyone wanting to record cool videos.
However, the commoditization of the action camera market has caught up with GoPro. The company has lost its novelty as competitors churn out feature-loaded devices at cutthroat prices.
Cheap competition has cut GoPro down to size
Just like the smartphone industry, Chinese companies are working their magic in action cameras by coming up with cutting edge devices and offering them at affordable prices. For instance, Chinese action camera maker SJCAM's flagship model -- the SJ7 Star -- undercut GoPro's top of the line Hero 6 by at least $300.
But at the same time, the SJ7 Star punches above its price range when it comes to features. It includes an aluminum body, 4K video, a 2-inch touchscreen, and an anti-shake mechanism for video stabilization.
Additionally, the SJCAM's accessories are cheap compared to GoPro's premium-priced add-ons. Not surprisingly, SJCAM is known as the "Xiaomi" of action cameras, and it's looking to step up its game by potentially releasing a series of three new models this year to suit different budgets, including GoPro's premium niche.
Moreover, SJCAM isn't the only company going after the action camera market. Chinese smartphone company Xiaomi is itself trying to make gains in the space. The latest Xiaomi Yi 4K+ action camera has been touted as superior to GoPro in both image and video quality. What's more, it sells for just $300 in the U.S., significantly undercutting the flagship Hero6 Black ($400 direct from GoPro).
These Chinese rivals have forced GoPro to forego its premium positioning and reduce prices in order to move its action cameras off the shelves. In fact, GoPro is now following the competition to save its standing in the market.
GoPro's latest move is a sign of desperation
GoPro recently revealed the Hero, an entry-level action camera that's priced at just $199. Of course, it isn't as feature rich as more premium models, since it foregoes 4K video capability and has a lower resolution to keep the price in check.
So the company is now following the competition in a bid to increase sales. But the success of this move isn't guaranteed, because the basic Hero is still expensive compared to what competitors are offering.
Even more troubling is the fact that GoPro's move into lower-priced cameras indicates the company is ready to forego margin growth in favor of sales. GoPro's non-GAAP gross margin fell to 24.8% during the Dec. 2017 quarter, down from 39.5% just a year ago and driven by the price reductions across its product line.
Not surprisingly, analysts expect the company's loss to more than double this fiscal year, and its long-term outlook also seems to be in jeopardy as the bottom line could drop at a CAGR (compound annual growth rate) of almost 18%.
Will the original action camera company miss out?
The action camera market has been growing impressively. Global Market Insights estimates that action camera sales could increase at a CAGR of 22% through 2023. But GoPro doesn't look like it's on track to take advantage of this booming market as it has failed to hold onto its early lead and dominance in the space.
Looking ahead, the competition will only get more intense as the likes of SJCAM and Xiaomi come out with better products and keep GoPro on its heels, which will make it difficult for the action camera specialist to arrest the slide in its revenue and margins.