GoPro (NASDAQ:GPRO) investors have been desperately looking for a turnaround for more than four years now, but the stock keeps hitting new lows. The company's travails continued in 2018 as it discontinued the much-hyped Karma drone right at the beginning of the year so that it could focus on defending its market share from low-cost competition in its core action-camera market.

GoPro took desperate measures, such as introducing a budget action camera to bring new users into its ecosystem. More importantly, management has been trying to work out a new product strategy so that it can balance volume and margin. But will GoPro's new course of action help it make a comeback this year?

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Image source: Getty Images.

Making the right play

GoPro's three action cameras currently range from $199 to $399. That's a departure from the $199-$499 range that it was offering a couple of years ago, pointing toward waning pricing power for the company that pioneered this space. However, that's also an indication of GoPro changing with the times.

The lower pricing is a necessary evil for GoPro in order to fight low-priced, power-packed action cameras from Chinese manufacturers such as SJCAM. The action camera market is expected to clock a respectable annual growth rate of 15% in the coming years, hitting $5.8 billion in revenue by 2021, according to TechNavio.

GoPro has generated $1.1 billion in sales over the past 12 months, so it needs to go on the offensive to grab a bigger portion of the pie and defend itself from the competition. That's where its current product strategy comes into play.

The $199 action camera will help bring first-time users into its fold, while the top-of-the-line offering should support margins. Of course, bears might note that the company was forced to run promotions on its entry-level and midlevel action cameras during the holiday season to move more volumes, but it wasn't discounting its flagship offering. GoPro says that the $400 HERO7 Black was its best-selling camera.

The results of this strategy should be visible when the company comes out with its fiscal fourth-quarter results in February. GoPro expects fourth-quarter gross margin to increase to 38%, a massive jump over the prior-year period's figure of 24.8%. That's expected to boost the company's bottom line to a midpoint of $0.26 a share as compared to the prior-year period's $0.30-per-share loss.

What's more, GoPro will achieve year-over-year top-line growth even if it hits the low end of its $360 million to $380 million revenue guidance. The company should have lowered inventory levels thanks to the discounts it ran during the holiday period.

In all, GoPro looks set to begin 2019 on a positive note, and it could be able to sustain the momentum for the remainder of the year provided its mix of product pricing and volumes remain favorable. But there's another potential play that could act as a tailwind.

Fusion could be a trump card

GoPro launched the Fusion 360 camera at the end of 2017 to enter the nascent market for spherical cameras. The good thing: It has managed to capture nearly half of this space, according to the NPD Group. The bad thing: The 360 camera market is very small, so the Fusion isn't a big contributor to the company's top line.

The global 360-degree camera market was reportedly worth $348 million in 2017, and GoPro hadn't entered the market at that time. The market is expected to clock a terrific annual growth rate of 27% through 2023, hitting a size of nearly $1.57 billion. Assuming that GoPro manages to control even half of this market in five years time, it could generate nearly $800 million in annual revenue from this segment.

The Fusion should also help the company boost its margins, as it is priced at nearly $600.

Make it or break it?

GoPro seems to have entered 2019 on the front foot. Leaner inventory levels, improving financial performance, and a potential catalyst in the form of the Fusion camera should ensure that it keeps improving through the year. However, GoPro has been known to fluff its lines in the past, so the company needs to ensure that it executes its volume-price strategy well, otherwise its future could be in jeopardy.

Check out the latest GoPro earnings call transcript.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.