GoPro Inc and Fitbit Inc are Both in A Soup
Like GoPro, Fitbit Inc (NYSE:FIT) too is in need of some love from the market. GoPro suffered due to slow action camera sales and low demand for new products like VR rigs and drones. Fitbit suffered due to fears about its shrinking margins in the face of new rivals.
GoPro Inc (NASDAQ:GPRO) expects the launch of the Karma drone and new Hero 5 cameras during the second half to boost sales, but both products could face fierce competition during the holidays. The impact of the drone could also be overstated — Cowen & Co. analyst Robert Stone predicts that Karma will only account for 2% of its top line this year due to competition and market saturation.
GoPro also discontinued the Hero, Hero+, and Hero+ LCD last month to slim down its portfolio — a total change from last year’s strategy. That move, which brings the lineup down to just three cameras (the Session, Silver, and Black), could cause sales to fall even more during Q2. GoPro says that the Session, Silver, and Black made up 68% of its sales last quarter. This means that near one third of its unit sales came from the cameras it just stopped making, and those potential customers could buy cheaper rival cameras over the next few quarters.
As for Fitbit Inc (NYSE:FIT), its bottom line decline was expected, since it had already declared that it would boost its sales and marketing spend at the end of 2015. But there are still ongoing concerns that simply spending more might not be enough. The firm needs to fend off low-end rivals like Xiaomi, unified health platform rivals like Under Armour and multi-purpose smartwatch makers like Apple. Each of these has products whose use cases overlap with some of those of Fitbit’s devices.
Like GoPro, Fitbit has shifted its focus toward premium devices instead of the entry level Flex, One, and Zip. In 2015, 77% of its revenue came from new high-end products like the Surge, Charge, and Charge HR. However, Fitbit arguably muddied up its product line with new devices like the Alta and the Blaze, which might cannibalize sales of those devices. Fitbit admits that 40% of Alta and Blaze activations were from those who already owned another Fitbit device.
What the Two Firms Need to do Moving Forward
GoPro is placing too much faith in its new flagship cameras and drones to carry its future growth, while Fitbit risks spending too much money to protect its market share. GoPro must prove that its new products can drive sales growth again, and Fitbit needs to be more disciplined in its spending. The former is being viewed as a one-product wonder that failed to keep up the momentum.
A few days ago, Wedbush Securities analyst Michael Pachter had raised doubts about the real demand for the new cameras. Now after the earnings report was out on Thursday, he wrote in a research note on Friday that they believe that investor patience is frayed to the point that few investors will be willing to give the firm the benefit of doubt.