Wall Street often gets enamored with new and exciting technology. But, eventually, investors hone in on the financial statements as the source for their evaluation of a company. The "nifty technology versus earnings" dichotomy is what investors have to consider when they evaluate camera maker GoPro (GPRO 1.17%).
Is this tech company a buy, sell, or hold? Most will probably want to err on the side of caution. Here's what you need to know.
What does GoPro do?
The core of GoPro's business is its camera equipment. Essentially, it makes extremely rugged videography devices that can survive being roughed up by sports enthusiasts in activities like skateboarding, surfing, and rock climbing. These are situations where carrying along your smartphone to take photos may not make the most sense because of the risk that you may break it. A GoPro probably won't break and it comes with software that helps to make your video look as professional and effortless as possible.
Image source: Getty Images.
The company built its name with strong product execution. In fact, if you watch some of the videos taken with GoPro technology, you are likely to be impressed by the quality of the footage. (You might also wonder why anyone would do some of the heart-palpitating things you just watched.) But it has expanded its offerings, now providing customers with subscriptions and services.
The expansion effort began in 2020. Customers can do things like store and share their videos and get access to better video-editing tools. This move makes a lot of sense for GoPro, particularly since these offerings provide repeatable income and generally come with strong margins.
In the fourth quarter of 2023, GoPro generated around 63% of its revenue from the sale of devices and 37% from subscriptions/services. Its subscriber count increased around 12% year over year in Q4. In other words, the transition toward a more balanced top line is progressing nicely. There's just one small problem: profits.
GoPro hasn't figured out how to be sustainably profitable
To management's credit, GoPro is charting what appears to be a logical course to best take advantage of the cool tech gear it sells. But Wall Street always comes back to the financial statements after the initial excitement about technology has worn off, and GoPro hasn't managed to consistently keep its bottom line in positive territory. That's a problem.
GPRO EPS Diluted (Annual) data by YCharts
For example, in the fourth quarter of 2023, the company lost $0.02 per share on a GAAP basis, down from a profit of $0.02 in the year-ago period. If you look at adjusted earnings, it turned a profit of $0.02 a share, but that was down from a profit of $0.12 per share in Q4 2022. For full year 2023, the GAAP loss was $0.35 per share, with an adjusted loss of $0.20 per share.
Those aren't great numbers for a company that's four years into a plan that is supposed to help make the business sustainable over the long term. Most investors will probably be better off staying away from GoPro until it has proven that it can generate consistent profits. If a more aggressive investor wants to buy the stock, the only reason to do so is because you believe that GoPro will eventually be able to find the right business model that allows it to be consistently profitable. If it does, there could be material upside, but so far there's little evidence that it can achieve this goal.
Exciting tech doesn't always make a good investment
One key issue for investors to consider here is GoPro's target audience, which is really something of a niche group of sport and video enthusiasts. That may not be a large enough cohort to support a stand-alone company. While it is true that GoPro has nifty tech to offer, at this point it seems like the stock is still a bad option for most investors.
