GoPro Inc (GPRO -2.65%) was once one of the hottest IPOs on the stock market but has rapidly fallen out of favor with investors. The company has reported $570.8 million in losses over the past eight quarters on miscues like overbuilding inventory and a number of underwhelming product launches. The most disappointing of those products was the Karma drone, which was recalled only weeks after launch and completely abandoned a little over a year after hitting the market

Given its financial struggles, GoPro can't afford any more product flops right now. It's tightened up its Hero lineup of cameras to a "good, better, best" strategy and a consistent, proven form factor for the cameras, which should now be a fairly stable product line. The wildcard is the Fusion spherical camera that GoPro launched in 2017, which allows 360-degree image capture. GoPro is trying to create a market from nothing with Fusion, much like it did with action cameras in the early 2000s, but it's a risky bet for a company in a perilous financial position, and it can't afford Fusion to be a flop right now. 

Spherical image of snowboarder on a mountain.

Image source: GoPro.

Where Fusion fits in the camera market

The spherical camera market is still in its infancy and there are only a handful of competitors for GoPro to fend off. Samsung, Garmin, and Kodak each make a spherical camera, but none have made it a centerpiece of their product portfolio. 

Fusion camera.

The Fusion spherical camera. Image source: GoPro.

The challenge is that winning in spherical cameras may not even move the needle for GoPro. Statista projects wholesale revenue for all spherical cameras in the U.S. at $65 million for all of 2017, so the market is very small. GoPro doesn't break out Fusion sales in its results, but in the first quarter of 2018, GoPro held 41% of the spherical camera market on a dollar basis, according to NPD, so it is capturing a large percentage of available sales. 

Despite the small market size, Fusion has some features that could make it attractive for camera users. Overcapture allows users to take a spherical video and then "overcapture" a 2D video from any angle after the fact. 

Fusion is also compatible with GoPro accessories, making it an easy product addition for action sports lovers. 

Why Fusion's success may be out of GoPro's hands

What makes Fusion a huge risk is the nascency of the spherical camera market. Not only have very few spherical cameras been sold, but there aren't a lot of 360 content viewers on the market that could draw customers to a spherical camera. GoPro has a 360 player in its app on mobile devices, but its spherical content isn't easy to use on virtual reality (VR) headsets. 

What could drive the spherical camera market forward is wider acceptance of virtual reality headsets. Facebook's Oculus Go is the first mass-market virtual reality headset that brings high quality and a low starting price of $200. If the device reaches mass adoption of 10 million or more -- about five times the sales of any other VR headset -- it could bring in a new wave of consumers looking to create 360 video content. 

Strangely enough, it's probably the adoption of VR headsets that will drive Fusion's success, and that's largely out of GoPro's hands. 

Will Fusion be the next Hero camera or a repeat of Karma?

Two years ago, GoPro looked like a growth stock with its Hero line of cameras and the anticipated addition of Karma and Fusion to the lineup. Karma is now gone and Fusion is the only product line extension currently on investors' radar. If it's not a success and GoPro has to write off inventory or take other losses on the product's development, it may be devastating for the company. Losses are mounting and if GoPro can't find a path to profitable growth, its days are numbered.