Why GoPro’s Stock Run-Up Is a Trap

By Douglas A. McIntyre Updated Jan 12, 1:25AM EST · Published Apr 15, 7:18AM EDT

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Why GoPro’s Stock Run-Up Is a Trap — © Thinkstock

GoPro Inc. (NASDAQ: GRPO) shares ran up almost 7% last week to $5.26. The rise was based on a rumor that China consumer electronics firm Xiaomi might buy it. There are two problems. The U.S. has been blocking M&A activity by Chinese companies. The other is that GoPro is already overvalued.

Xiaomi management wants to sell smartphones in the U.S. Wireless carriers have already indicated a reluctance to carry them. AT&T Inc. (NYSE: T) particularly dropped a potential partnership. It may be the government played a role. There are concerns that Chinese consumer electronics devices could spy on Americans, although the theory seems far-fetched. It has played a role in Xiaomi’s American problems, nevertheless. Xiaomi will almost certainly shy away from a GoPro deal because of concern it would be blocked.

Additionally, GoPro has proven that its stock is barely worth its current price. It reached a 52-week high of $11.89 last September and has crashed since then. Its video camera products are seen as part of a crowded market, which even includes Apple Inc. (NASDAQ: AAPL) iPhone video capture.

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GoPro’s financials have also been in a nosedive. Revenue in the final quarter of 2017 fell 38% to $335 million compared to the same quarter last year. The company had a net loss of $55 million compared to $116 million in the year-ago period. GoPro has cash and marketable securities of $250 million. Solvency is not the issue. Product relevance is.

GoPro has launched several products recently. The most carefully watched is a low priced version of its flagship product. The new HERO camera has a price tag of $199. The company’s main product is the GoPro HERO6 Black with a price tag of $399. The new camera may bring in additional customers, but the lower price point won’t help GoPro’s top line

GoPro has a potential buyer that may not be allowed to buy it, and products which do not sell well and have too much competition.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.