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GoPro Inc (NASDAQ:GPRO) Needs to Tighten its Belt

GoPro Inc (GPRO)
GoPro Inc , the action camera maker, is set to release its Q1 2016 earnings report on Thursday after the market closes. Wedbush analyst Michael Pachter is not too optimistic about GoPro’s fate. Pachter says that demand for the HERO4 Session has been spotty at best. The HERO4 Black has fallen from the top of industry sales charts. He believes that the management of GoPro made a major blunder by not launching a replacement for the HERO4 in the last holiday season.
gopro inc (GPRO)

GoPro Inc Takes its Chances With Drones

Pachter thinks that if the drone Karma is launched on time, it is not likely to have a big impact on GoPro for fiscal year 2016. He defends his belief by saying that GoPro Inc has an installed base of about 20 mn devices. Thus, it is likely that if Karma meets the users’ expectations, GoPro can tap into at least 1% of this installed base each quarter. That can lead to sales of 150,000 – 200,000 Karmas each quarter.

Pachter also agrees with investor concerns due to a lack of details known about Karma. There are just about two months to go before the expected launch. But he also notes that GoPro has a history of keeping mum about new products till just days prior to the launch. He goes on to add that given GoPro’s history of innovation, they (at Wedbush) are willing to give the firm the benefit of doubt for the time being.

On the other hand, analyst Brad Erikson of Pacific Crest commented after his firm’s channel checks. The checks indicate that there are record high inventory levels being seen currently. In Q1, U.S. sell-through has seen a 40% decline on a Y-o-y basis. Brad does not think that new software or buy-outs will improve the firm’s ‘core utility problem’. He is more worried about a lack of important features. He added that while GoPro’s cameras remain compelling for a small niche of buyers, they (Pacific Crest) believe that the editing experience remains the key hurdle in luring more users to the category.

About Karma, Brad told that they believe that any short-term gain that can happen as a result of Karma’s reception by users will not be enough to overcome the inventory numbers and a weakening demand for action cameras. He also said that while the drone launch doubles the firm’s TAM, there will still be a downside in the longer term due to action camera softness, with drones likely to be gaining only modest traction over time.

Another area of potential growth for the firm could come from the broadcast and film production industry.  Last month, at the National Association of Broadcasters annual conference in Las Vegas Nevada, GoPro cameras were attached to almost every conceivable device from drones to virtual reality camera arrays.

Can GoPro Stand Up to Smartphones?

The firm also stands to face a very big threat from smartphones. Unless the firm does something magical, the sales this year can go down by as much as 17%. GoPro had launched about a decade ago with tiny and light cameras which were aimed at surfers, skiers and other athletes involved in extreme sports who would take these cameras anywhere. Now GoPro Inc is trying to go beyond cameras, but most people already have smartphones which are almost as small and light as these cameras and they may not want to lug around yet another device everywhere they go. Things are not well on the legal front as well. Purcell Julie & Lefkowitz LLP is a securities class action law firm dedicated to representing shareholders nationwide. It is believed to be investigating a likely breach of fiduciary duty by the board of directors of GoPro.

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