The extreme camera maker's shares nosedived by 16% on Thursday to the lowest level since going public. GoPro (GPRO, Tech30) stock is not only on track for its worst day ever, it’s now close to its IPO price of $24.
The amazing GoPro story has come crashing into a harsh reality: The market for extreme sports enthusiasts who have the money for the amazing devices may just not be all that big.
GoPro's gravity-defying sales growth is coming back to earth. Sales exploded by 72% in the second quarter, but slowed to 43% last quarter and now GoPro is warning sales will actually drop during the holiday season.
It's not that GoPro's cameras are not good enough, they're fantastic devices. The problem is GoPro is struggling to expand beyond a niche market to mass appeal.
GoPro investors agree. “You need a broad market,” said Roger Kay, a tech analyst who is president of Endpoint Technologies Associates.
GoPro dropped a bomb on investors late Wednesday when it reported earnings and sales that badly missed targets. Fears about GoPro's future were amplified by the company saying holiday sales will tumble.
GoPro burst onto Wall Street in June 2014 when it sold shares to a public growing increasingly fascinated by the gadget maker's brand. The stock skyrocketed, more than quadrupling in just four months.
But investors are quickly realizing the young, hip, athletic audience that GoPro appeals to isn't representative of the typical American consumer. "Another problem: Most of the young, hip people are struggling with money, and these products aren't cheap," Kay said.
GoPros aren't cheap. But they are getting cheaper, and that's alarming Wall Street. Piper Jaffray slapped a rare "underperform" rating on GoPro due in part due to disturbing pricing trends. GoPro's HERO4 Session is now fetching "only" $300 on Amazon (AMZN, Tech30), down from $400 in mid-September, according to a PiperJaffray report titled "GoPro likely to GoLow(er)."
Questions about GoPro's future are causing Wall Street to mark down the way the stock is valued. Instead of the fast-growing media and Tech Company GoPro aspires to become, investors are applying lower, more hardware-like multiples to the stock.
None of this means GoPro can't return to flight eventually. The company has a series of ambitious efforts underway, including expanding into the rapidly-growing drone market, launching a new editing software platform and monetizing its awesome content of extreme sports activities. GoPro recently surpassed 1 billion views on its YouTube channel.
"You need all of that stuff to hit and spark up the growth rate again for the shares to get back," said Stone.
GoPro founder and CEO Nick Woodman insists he and his employees are far more focused on the long-term vision than the recent stock turbulence. “Everybody within GoPro is very excited and determined...It makes it easy for us as a team to look past what the stock is doing today and focus more on where we are going to be in the next three to five years.”
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