Why GoPro Stock Is Selling Off After Earnings -- More to Come?

Consumer Electronics

Published: August 1, 2014 1:55 pm

Last Updated: April 28, 2020 10:18 am

To say that GoPro Inc. (NASDAQ: GPRO) had a blockbuster initial public offering (IPO) just a little more than a month ago would be understating what happened. The hands-free, high-definition video camera maker priced 17.8 million shares at the top of its expected $21 to $24 range, and shares went off at $28.65 before closing at $31.34, up about 30%. Shares touched a high of nearly $50 on July 1.

After reporting better-than-expected profits and revenues after markets closed Thursday night, the stock traded down about 15% early Friday afternoon. Shares are still trading at about 42 times projected 2015 fiscal year earnings, but the thrill is gone. While it’s nearly impossible to be sure about what’s happening, there are some hints.

For one thing, there is still some concern that a camera that costs between $200 and $400 may have already reached the majority of its intended audience. There does not seem to be a very wide or deep moat protecting the company from the near-certain introduction of lower-priced competitive cameras. And how many people really need another camera in addition to the one that comes on their smartphones?

The coming introduction of a new iPhone from Apple Inc. (NASDAQ: AAPL) could also cause a dip in GoPro sales. While one might argue that it is unlikely that a person will strap a new iPhone to his or her helmet and tear down the snow-covered slopes of Snowbird or Vail, analysts are wary. Besides, the new iPhone is not going to be cheap, and unless a person is really a hard-core action sports enthusiast, buying two devices might be a bit beyond the budget.

GoPro is trying to monetize the videos it gets from users and currently posts online for free. It is developing a YouTube channel and an estimated 6,000 videos shot with the camera are uploaded to YouTube every day. Whether or not extreme sports enthusiasts will pay a subscription fee for GoPro channels remains to be seen. The recent experience of World Wrestling Entertainment Inc. (NYSE: WWE) may be instructive here.

Perhaps the answer is simple profit-taking. Who knows? Predicting price moves on recent IPO stocks requires a better crystal ball than we have. What we do know is that GoPro stock traded down about 12% in the mid-afternoon on Friday, at $42.20 in a 52-week range of $28.65 to $49.90.

ALSO READ: What Drove Mobileye 50% Higher After Premium IPO Pricing?

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