Shares of action camera maker GoPro(NASDAQ:GPRO)have seen more ups and downs than a world-class roller coaster, and the company appears on track for even more volatility. The stock still trades over 60% higher than its original IPO price from June 2014, but market confidence has been on a steep downward slide. Shares are down 39% year-to-date and nearly 61% from October highs.
Big dips have recently corresponded with news that Apple received a patent for an action camera, disappointing guidance for the current quarter, and the announcement that Ambarella would provide chips for low-cost action cameras from Chinese cell phone maker Xiaomi. At roughly 40% of float, GoPro is one of the most shorted stocks on the market.
Plenty of conditions and scenarios could extend this stock plunge, but the company still has the potential to recover. Shares are likely to pop if the company can deliver wins on these crucial fronts.
GoPro needs to promote innovation and deliver wins beyond its main camera line
So far, GoPro product development has largely been iterative, with successive releases improving on features such as video encoding, resolution, and frame rate. This strategy has been sensible and yielded impressive sales growth, but the company is approaching the point of diminishing returns. Its $499 HERO4 Black is already capable of capturing 4K resolution at 30 frames per second and 2.7K at 60 FPS, yet adoption of these formats is still in its infancy. Ambarella recently unveiled H1 chips that will likely be candidates for future GoPro cameras, allowing for 4K capture at 60 FPS. While such features are impressive, many consumers would not put them to full use.
To stay at the forefront of this market and continue delivering impressive margins, GoPro must succeed with products that transcend the typical advancements that have defined the HERO line.
To that end, the company has already announced that it will debut flying drone cameras this year. Another possible avenue for expanding its product portfolio would be to introduce 360-degree panoramic cameras, a feature supported by the Ambarella H1 system-on-chip. GoPro does not manufacture the key technologies in its devices, so there is added pressure to improve its software suites and media network, while also pursuing form-factor innovations for cameras and mounts.
Most sports are not a natural fit for GoPro cameras
GoPro's partnerships with the NHL and X Games are big wins that bring plenty of potential, but there are obstacles for similar deals with more popular sports, including basketball, football, baseball, and soccer leagues. The best GoPro footage tends to capture the types of smooth motion found in activities like water sports, snowboarding, skiing, or skateboarding. This is not a coincidence, and the root cause is not easily overcome. A jumpy perspective tends to be jarring, while smooth video footage is much more pleasing to the eye.
Even if form factor and safety concerns could be overcome in those sports, the resulting video will often be bumpy. Advancements in video smoothing software could mitigate this problem but unlikely to eliminate it entirely. Drone cameras offer an exciting alternative, but wired cameras already do a fair job of capturing dynamic angles without many of the concerns that accompany flying UAVs. Overcoming these challenges and securing new professional sports partnerships would be a big win for GoPro.
Building the brand in Asia amid low-price competition
Last year, less than 10% of GoPro revenue came from its Asia-Pacific segment, and increased presence in countries such as China, South Korea, and Japan represents a big growth opportunity. Unfortunately for GoPro, its brand is not nearly as strong outside the U.S. which will only make it tougher to compete against low-price alternatives in these markets. On paper, the $64 action camera from Xiaomi already offers better features than the entry-level GoPro HERO device at $129, and additional competitors are likely to enter the low-end segment. At the high-end, established brands like Sony might do a better job of designing and marketing their own devices.
If GoPro can show resilience amid these challenges and significantly improve its brand strength in Asia, it would be a major positive indicator for the company and one likely to be accompanied by big gains.