What's going on?
GoPro’s shares dropped by about 20% after the once-prolific camera maker said it snapped significantly less revenue in its latest quarter than investors expected. The stock is now down over 90% since its 2014 peak – now that’s a wipeout!
What does this mean?
Part of the problem stems from soft demand for GoPro’s flagship Hero line of cameras. GoPro took the plunge and chose to substantially cut the Hero’s price in order to boost sales over the crucial holiday season. Partly due to the Hero failing in its quest, GoPro is now laying off almost 20% of its workforce as part of a cost-cutting plan that seeks to return the company to profitability by the second half of 2018. It’s also abandoning its agonizingly shiny new drone business, shuttering the Karma drone-cam sideline.
Why should I care?
For markets: GoPro is more of a cautionary tale than a big impact on markets overall.
The GoPro story is a reminder that owning shares of one individual company is risky (relative to owning a bunch of different stocks, a.k.a. diversifying). This is especially true with relatively new companies with sales concentrated in a single hot product. In the time it took for GoPro to lose more than 90% of its value, US stocks as a whole have risen about 50%. (tweet this)
The bigger picture: The drone market is fiercely competitive.
GoPro’s retreat from the drone market is undoubtedly somewhat to do with its desire to cut costs, but the company also cited huge pressure on profitability: competition in the industry is pushing down manufacturers’ profit margins. Meanwhile, in GoPro’s view, increasingly strict regulations (like mandatory drone licenses) in Europe and the US will likely reduce the total size of the available market. It’s a sign that, despite expectations of the market taking off, succeeding in the competitive and highly regulated drone game will be tough.