Shares of GoPro Inc (NASDAQ:GPRO) are down nearly 95% from their all-time high in late 2014, making it one of the most disappointing new companies on the stock market over the past decade. The company has suffered from everything from failed product launches to inventory missteps that have led to hundreds of millions in losses over the last three years. 

Looking back at what GoPro did wrong, there are a few lessons we can learn from the company's biggest missteps. 

GoPro Hero6 camera.

Image source: GoPro.

Do what you do best

When GoPro went public, it was trying to bill itself as a media company, not just a camera maker. It began developing original content and launched its own channel on Red Bull TV, hoping to expand into content the way Red Bull did with its film arm. GoPro even launched apps where users could upload their own content, hoping to be something of a YouTube for action sports. 

The problem was that GoPro didn't have any real advantage in the media business and was never the best software creator. As companies like Netflix, Amazon, and HBO poured billions into their own original content, it became clear that GoPro couldn't compete, and finally, its media business was shut down in late 2016. 

Another investment GoPro made was in drones, where it seemed to have a natural line extension. GoPro's cameras were the standard camera for early DJI drones that captured consumers' imaginations, but GoPro messed up its drone product in myriad ways. 

By 2016, when GoPro finally launched the Karma drone, DJI had taken the drone world by storm. It had drones that had proximity sensors to avoid collisions, integrated cameras, and even hand gestures to control drones. Karma launched with none of those features and a bulky, cheaply designed form factor. GoPro simply didn't know how to make drones, and by the time it got in the game, it was too late. 

What GoPro has always done best is action cameras. When it has tried to expand beyond that, it's run into a wall of competition, and when it had a legitimate opportunity, it tripped on its own poor execution. 

Inventory kills

Inventory may sound like a snooze-worthy topic, but for cyclical product companies like GoPro, that sell most of their products during the holidays, it's a matter of life and death. GoPro's problems really started to get bad late in 2015, when it released an uninspiring update of six cameras in the Hero camera line. Naturally, the company had to build inventory for the holiday season, but when sales didn't go as well as planned, the company ended up with tens of millions of dollars of unsold inventory and began discounting what it had left. There was nothing to do but try to unload it at a discount. It took $97 million in charges for the year for price protections for retailers and excess purchase order commitments, and that was only the beginning of the losses. 

The chart below shows the inventory problem, exemplified by the sharp drop in inventory turnover. The metric measures the number of times per year inventory is purchased, put in a warehouse, and eventually sold to a customer. If inventory turns over quickly, it's good for a company, and if it doesn't, it can be a sign of problems. In 2015 and 2016, you can see that inventory turnover plunged. 

GPRO Net Income (TTM) Chart

GPRO Net Income (TTM) data by YCharts.

Over-building inventory was a critical mistake by GoPro's management, and inventory continues to be a challenge to this day. 

Don't overestimate your competitive advantage

Since coming public, GoPro has seemed to think it can turn its camera business into something more. Media, drones, and now 360 cameras are all extensions the company has tried, but there's no reason customers of these products need to stay in the GoPro ecosystem. For example, when you take images on a drone, they're usually offloaded to a computer or mobile device, just like GoPro camera content, so what does it matter if the drone is a GoPro or a DJI drone. Since GoPro didn't have a competitive advantage, it couldn't overthrow DJI's leading market position. 

Another good example of failing to understand where it had a competitive advantage is in software like Quik and Splice, apps the company pushed as editing tools for GoPro content. The company spent $105 million in 2016 to acquire Stupeflix and Vemory, the app creators that eventually became Quik and Splice, but the deal never added value for GoPro. Most of what Quik and Splice do is available on any smartphone for free, so why use a specific GoPro app? 

GoPro's products have always been ideal for action sports and applications where a compact device is needed, but as GoPro tried to expand into new products, it wasn't able to recreate the same magic. It always seemed to overestimate the competitive advantage GoPro's cameras had in the market. 

Strategic missteps will kill a growth stock

GoPro was supposed to be a great growth stock just a few years ago, but strategic missteps have cost the company hundreds of millions of dollars and are leaving it on life support today. At best, GoPro's investors are hoping for a buyout offer from a bigger tech company. At this point, that may be the best option GoPro has to add value to shareholders.