Let's be honest. Time is running out for GoPro (GPRO) to regain the market's confidence and build a sustainable business.

Management has said that the holiday season is off to a smashing start, and 2019 should be a profitable year. Yet, GoPro's stock keeps falling, and at around $4 per share, there's not much further it can fall before joining the dreaded penny stock crowd. 

2019 is a critical holiday season because if losses continue much longer, GoPro could run out of cash, barring some kind of infusion. GoPro can't afford a bad holiday season, and there is little time left to impress investors who may want to buy the stock

Three GoPro Hero 8 Black cameras, one with an attached flash and tripod

Image source: GoPro.

The crucial holiday season

The holiday season is always the most important for GoPro. The company generates as much as half of its sales during the holidays, usually between September and the end of the year, and it's often the only time GoPro reports a profit. 

GPRO Revenue (Quarterly) Chart

GPRO Revenue (Quarterly) data by YCharts.

That's why a delay in the launch of the Hero 8 camera was so disappointing in 2019. But still, management says GoPro will generate $1.215 billion to $1.25 billion in revenue this year and will be very near breakeven on an adjusted earnings-per-share basis. 

It sounds great that GoPro is growing once again, with revenue expected to increase 6% to 9% from a year ago, but cash is still a problem. And without a big holiday season, there's no easy way out of its current financial problems. 

Cash is king

Growing revenue is great, but if revenue doesn't translate to profit and free cash flow, then growth doesn't matter for the long-term viability of a company. The chart below shows how dire the situation is at GoPro, which has just $43 million of cash, $146 million of debt, and negative free cash flow running as far back as 2016. 

GPRO Cash and Equivalents (Quarterly) Chart

GPRO Cash and Equivalents (Quarterly) data by YCharts.

If the current cash trend continues, GoPro could run out of cash in the next year. That may not happen given the likely influx of cash from the holiday season, but cash is certainly a concern. 

Given the seasonality of GoPro's business, it's unlikely there will be a positive cash flow period until the holidays in 2020, and again in 2021. With debt maturing in April 2022, GoPro has this year and two more holiday seasons to build a sustainable business before it will need to pay off debt or refinance. If free cash flow and profitability don't improve, investors may not be willing to extend more funding. 

GoPro faces an uphill battle

The ultimate challenge for GoPro is that its core business is losing money, and it can't find a way to expand beyond the core product line. Drones were a failure, a move into media was quickly abandoned, and 360 cameras are barely making a dent in sales. 

I don't see an easy way out for GoPro given its weak balance sheet and inability to grow its product line. A big 2019 holiday season would give investors some confidence and GoPro some financial leeway, and it may be the company's last chance to build a long-term recovery.