Share prices of GoPro(NASDAQ: GPRO) have fallen more than 60% over the past year. Wall Street is clearly worried about the company's prospects. Contrarian types might take a look at what amounts to blood in the street and think it is worth jumping aboard this maker of highly respected cameras.
I wouldn't -- and here's why.
GoPro is shifting gears
At first, GoPro focused on making great cameras. These aren't just any cameras -- they're ultra-tough cameras that can be used to film death-defying stunts and survive to record the tale. Adventure seekers have long given the company's products high praise. But there are only so many people who want to film themselves deep sea diving or jumping out of planes. So GoPro has been attempting to broaden its product offering.
Image source: Getty Images.
The first big step in that regard was to offer subscription services. The core offerings here are storage and editing tools that make it easier to use the footage captured by GoPro cameras. It's a good expansion plan. The subscriber roll went from 942,000 in the first quarter of 2021 to 2.5 million in Q1 2024. Subscriptions provide high-margin recurring revenue, which is a very attractive addition to the more episodic revenue from selling cameras.
The problem is that the subscriber count has flatlined since the third quarter of 2023. That's notable because it includes the holiday selling season, which logically should have resulted in a bump in camera sales and, by extension, a bump in subscriptions. That this didn't happen suggests that GoPro has, perhaps, saturated its market. It is, after all, a consumer discretionary company, which means its product is an optional purchase for buyers.
Can GoPro attract more customers?
This is where GoPro's next big plan comes in. It is working to broaden its product offering while still attempting to stay true to its core active customer niche. That means trying to sell less robust cameras to people who aren't likely to jump out of an airplane anytime soon.
This is a good idea, but I'm not sure that any company could succeed in this effort. After all, just about everyone has a smartphone today. The cameras on smartphones are more than enough to handle most of the photography needs of most people. How many people are likely to buy another device when the one they have in their pocket (and with them almost all the time) is good enough? This is an uphill climb.
That brings up the big question mark for me when it comes to GoPro: Is this a viable stand-alone company? What GoPro does, it does well, for sure. But that doesn't mean it can keep itself going over the long term. Notably, as the chart below shows, it has yet to figure out how to turn a sustainable profit, despite its highly regarded product offerings.
GPRO Normalized Diluted EPS (Annual) data by YCharts
I'm not convinced that trying to sell cameras to people who may not need them is going to be the strategic shift that changes this dynamic. I believe strongly that GoPro would be better off as a part of a larger company. Or, put another way, I think it should -- and perhaps eventually will have no choice but to -- sell itself to a larger company with complementary products.
GoPro just isn't worth the risk for me
I don't buy stocks in the hope that they'll get bought out. And I can't say I'm excited by a company with a niche product that appears to have saturated its market. While I admire GoPro's technology, I'm not a fan of its stock. Only aggressive investors should be looking at GoPro -- and even then, a great deal of caution is warranted.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
