Please ensure Javascript is enabled for purposes of website accessibility

Instant Analysis: GoPro Inc. Faces Class Action Lawsuit Threat

By Leo Sun - Jan 29, 2016 at 6:42PM

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

Several law firms put out a call for disgruntled shareholders.

2016 has already been a tough year for GoPro (GPRO 1.94%) investors. On Jan. 13, the action camera maker warned that its fourth-quarter sales growth would be worse than expected, that its media chief was leaving, and that it would lay off 7% of its workforce. The stock plummeted, and now remains down over 40% for the year.

After GoPro's announcement, several law firms encouraged investors who lost large amounts of money (often in excess of $100,000) to file class action lawsuits against the company. Several complaints have since been filed in California federal courts with requests to be certified as class action suits.

Why are investors suing GoPro?
Most of these potential lawsuits allege that GoPro management misled investors by overestimating sales growth during its third and fourth quarters, while understating the market failure of the Hero 4 Session. During GoPro's second quarter, CFO Jack Lazar estimated that third-quarter sales would rise 56% annually, but they grew only 43%. During the third quarter, Lazar claimed that fourth-quarter sales would decline 17% annually, but GoPro's warning now calls for a 31% decline. Lundin Law PC, one of the firms asking investors to sue GoPro, calls the guidance for both quarters "inflated and unrealistic."

Last July, GoPro launched the Hero 4 Session, a tiny $400 camera aimed at mainstream consumers. But when it sold poorly during the third quarter, GoPro reduced its price to $300 and took a $19 million writedown. When it still failed to sell well in the fourth quarter, GoPro slashed its price again to $200 and took another $21 million writedown.

What's next for GoPro?
Things look bleak for GoPro now, but investors shouldn't read every investor alert as a lawsuit -- none of these cases have actually made it to court yet. Class actions suits often occur when a company's stock crashes, but they are typically settled quietly with little or no money paid to most investors.

A more important case to watch is C&A Marketing's patent infringement suit against GoPro, which alleges that GoPro copied the design of its Cube while designing the Session. C&A has asked to be awarded all the profits from GoPro's Session sales.

Despite all the legal doom and gloom, there are still a few catalysts on the horizon. GoPro's recent partnership with Twitter's (TWTR 0.73%) Periscope might boost sales of its Hero 4 Black and Silver cameras, and its upcoming Karma drone and Hero 5 cameras could finally get its sales growth back on track. But as I mentioned in a previous article, it could be a long and tough road back for GoPro in 2016.

Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of and recommends GoPro and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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.
GPRO
$6.84 (1.94%) $0.13
Twitter, Inc. Stock Quote
Twitter, Inc.
TWTR
$44.26 (0.73%) $0.32

*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
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/13/2022.

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.