You might assume that because I’m a Sony (NYSE:SNE) guy, I’ve never had any love for GoPro (NASDAQ:GPRO). For the record, I prefer GoPro’s line of action-cameras; they practically invented the category. What I don’t like is GPRO stock. Look at its price chart and you’ll quickly see why.
This is why I pounded GoPro stock every chance I had. Despite fathering the action-camera segment, competitors quickly entered the arena. At first, that didn’t bother management because it levered a strong brand. However, GPRO demonstrated its vulnerabilities when it couldn’t gain traction with other businesses, such as drones.
But, last year, I had a small change of heart. After years of devastation in the markets, I felt that GPRO stock possibly had hit rock-bottom. As the adage states, the only direction from there is up. Therefore, I gave it a shot as one of 20 small-capitalization stocks with outsized potential.
Of course, I had other arguments besides commonly heard anecdotes. Management significantly cut its workforce, which, on paper, boosts earnings. Additionally, the organization whittled down its business expenses and even research and development.
Just as importantly, the camera-maker generated solid revenues across its price channels. In particular, I was impressed that it did so without any of the products cannibalizing each other.
If you’ve been following the news on GPRO stock, you might think I made a fortuitous decision. Early last month, GoPro’s CEO Nick Woodman predicted a return to profitability in 2019. Sounding like self-help guru Tony Robbins, Woodman proclaimed “GoPro’s brand has never been stronger, our products never better.”
As Woodman is going to bat for his company, GoPro stock is up nearly 47% year-to-date. Is the worst finally over?
It’s Time to Go Away From GoPro Stock
Let me just share one more anecdote before I get into the facts. Personally, I’m considering buying multiple, top-of-the-line GPRO cameras. To get the in-car footage I’m seeking, Woodman is correct: nothing beats the GoPro brand or the products.
From that sentiment alone, GPRO stock possibly appeals to speculators. Every time we watch YouTube videos, most of the sensational shots owe their existence to GoPro. Clearly, the company bridged the gap between professional media studios and talented, but underfunded amateurs.
But, as I promised, let’s now look at the facts. Back in 2014, The Verge reported that half of YouTube’s viewership stats originate from smartphones and tablets. A few years later, the inevitable happened: smartphones have radically changed the way people “shoot and watch video.”
In other words, viewers appreciate the flashy stunts and outdoor footage that you can only get from action cameras. However, this is a niche category. Instead, social media and video-sharing platforms mostly focus on run-of-the-mill, mundane footage. The distinguishing factor is the content, not necessarily the footage.
That segues into another problem for GoPro stock: competition. Early on, the company had to worry about copycats and low-priced rivals. Now, they face perhaps an untenable challenge from the likes of Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).
That’s because smartphone manufacturers have integrated groundbreaking technologies into their products. I’m able to take incredible video with my iPhone X that was simply impossible for many older digital-SLR cameras. Nowadays, it’s just redundant to have separate devices that only take photos and video.
Plus, with reasonably-priced smartphone gimbals like the DJI Osmo, an action-camera is irrelevant for most consumers.
The End of the Road for GPRO stock
If you take a look at the long-term revenue trend for GPRO stock, you’ll notice sales have tilted negatively since late 2014/early 2015. Inevitably, the company laid off its workers and cut costs, even critical ones.
But what this also shows is the death throes of an electronics firm suffering from commoditization. Stable action footage is no longer unique, and it can be actualized through relatively cheap mechanisms.
Don’t get me wrong: action-cameras have demand. Even point-and-shoot cameras apparently find millions of homes every year. But this niche demand is filled by big companies that win on combined volume with other profitable products.
GoPro is different. It’s a small fish trying to win largely on a fringe product that is neither unique nor broadly relevant.
I gave GPRO stock a chance because I thought it might surprise me. It did temporarily, but recent figures aren’t good enough to overcome steep fundamental obstacles. The smart play here is to simply stay away.
As of this writing, Josh Enomoto is long SNE.