Please ensure Javascript is enabled for purposes of website accessibility

GoPro Kills Its Top Camera While Delaying Its Successor

By Leo Sun - Oct 3, 2019 at 9:54AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It simultaneously killed interest in the Hero 7 and delayed the Hero 8’s launch.

GoPro's stock (GPRO -0.59%) recently tumbled after the action camera maker cut its full-year revenue guidance from 9%-12% growth to just 6%-9% growth. It blamed the reduction on a production delay, which will shift the shipments of its new Hero 8 Black cameras from the third quarter to the fourth quarter.

GoPro also expects the delay to reduce the midpoint of its adjusted gross margin for the second half of 2019 from 37.5% to 36.5%. As a result, it slashed its full-year adjusted EPS forecast from $0.40 to $0.30-$0.35, which is still better than its loss of $0.23 per share in 2018.

Simply put, any investors who hoped that GoPro's new Hero 8 and 360-degree Hero MAX cameras would pull its stock out of the gutter were sorely disappointed. Let's take a look at how GoPro dropped the ball again -- and why it might be time for investors to cut their losses.

GoPro's Hero 8 Black.

Image source: GoPro.

Killing its top camera while delaying its successor

GoPro's stock has lost over 90% of its value over the past five years for four reasons:

  1. Its upgrade cycles were too long (especially after the Hero 4 in 2014)
  2. Cheaper competitors entered the market
  3. Smartphone cameras improved
  4. The company failed to expand beyond its niche market of outdoor enthusiasts

GoPro tried to counter those headwinds by launching cheaper cameras (which simply cannibalized its higher-end devices) and a drone (which was quickly crushed by market leader DJI Innovations). As a result, GoPro's revenue growth hit a brick wall and its margins crumbled.

Fiscal year






YOY revenue growth






Adjusted gross margin






YOY = Year-over-year. Source: GoPro annual reports.

However, GoPro's revenue grew 10% annually in the first half of 2019, and its adjusted gross margin expanded to 34.2% in the first quarter and 35.8% in the second quarter. The main reason was that the Hero 7 Black, which records 4K videos at up to 60fps, finally convinced some users to upgrade their aging cameras.

GoPro, encouraged by the Hero 7's success, likely wanted to avoid the mistakes it made in 2015 when it didn't follow up the popular Hero 4 with a new flagship device. Instead, it launched two cheaper cameras before launching the Hero 5 in late 2016.

Unfortunately, GoPro's cheaper cameras cannibalized sales of the Hero 4, reduced the brand's pricing power, and made it tougher for the Hero 5 to win over consumers. As a result, GoPro discontinued most of its cheaper cameras and resumed annual launches of its flagship devices.

But, as I recently pointed out, strong sales of the Hero 7 in the first half of 2019 didn't signal the start of a new heyday for GoPro. Instead, they indicated that users of much older cameras, like the Hero 4, finally upgraded their devices. Therefore, GoPro should have given the Hero 7 more room to run before announcing the Hero 8.

GoPro's Hero 8 Black camera and its smartphone app.

Image source: GoPro.

Instead, GoPro prematurely killed the Hero 7's momentum by announcing the Hero 8, since high-end users don't want to buy an outdated camera. Then it dropped the ball again with a production delay, which pushes the camera's on-shelf availability into late October -- compared to September launches for its previous four flagship cameras.

The production delay also raises a red flag

GoPro has struggled with production delays before, but rarely with its flagship devices. This raises questions regarding GoPro's decision to replace Ambarella's industry-standard image processing system-on-a-chip components with in-house chips (designed by Japanese chipmaker Socionext) in 2017.

GoPro's divorce from Ambarella reduced its production costs, but its decision to rely on in-house chips could be causing hiccups in its supply chain. GoPro also has a spotty history of relying on smaller contract manufacturers, like Taiwan's Chicony Electronics, instead of more reliable giants like Foxconn, which was once a major GoPro investor.

The problem isn't GoPro's product, it's the upgrade cycle

It's easy to blame GoPro's management for its latest problems, but the real issue is the painfully long upgrade cycle for action cameras. People don't generally buy new GoPro cameras unless their old ones break or significant new features are added.

The Hero 8's most significant improvements over the Hero 7 include an upgraded version of the HyperSmooth stabilization feature, a built-in mount, and prongs to connect more accessories. The maximum resolution and frame rate remain the same, though, which doesn't make it a compelling upgrade for Hero 7 owners.

Therefore, investors should consider GoPro a cyclical stock -- 2014 and 2018 were its post-IPO peaks, and it's heading toward another trough as users stick with their old cameras or focus on cheaper devices or new smartphones instead. Investors should focus on that decline instead of GoPro's latest guidance cut, and realize that things could get much worse over the next few quarters.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ambarella. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

GoPro, Inc. Stock Quote
GoPro, Inc.
$6.71 (-0.59%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.