I'm going to describe two important things about succeeding in business. Ask yourself if they apply to GoPro Inc ( GPRO ) stock.
Source: ETC-USC via Flickr (Modified)
Think about the most successful companies in the world. Many of them started because enough people had a need for something. There was a problem that needed to be solved. That need got fulfilled and a company was born.
Perhaps that need was something that needed to be routinely fulfilled. For example, someone realized we always need soap.
Now, think about things like televisions in modern society. When they first came out, televisions were kind of a luxury. The first generation of new inventions are always luxury items. The color TV was a luxury at first, then eventually they were ubiquitous. Then came HD. Then came LCD. Then came Plasma. Now it's 4K.
What always happens? The item becomes a commodity - virtually the same product is available everywhere and manufacturers are almost identical in creating the product. Nothing distinguishes one from the other, except at a level indistinguishable to the eye.
What problem exists that enough people need to continually buy a product from GPRO, and therefore give GoPro stock long-term viability?
GoPro Stock's Big Problem
The notion of a camera that you can take anywhere is nifty. It fit a niche. However, the consumer base is limited.
Not only that, GoPro is competing with various knockoffs i.e. it has become a commodity, making GoPro stock less attractive. That's especially true when it comes to electronics, which are so easy and cheap to make.
GoPro stock has reacted accordingly. After the hype wore off, GoPro stock fell 90%. I just wasn't paying enough attention to short it. For the long-term, take a good hard look at GoPro stock and its financials. GPRO has a $214 million loss over the TTM! It had $54 million in negative operating cash flow, and $96 million in negative free cash flow.
That has badly impacted the balance sheet. Look at the cash and cash equivalents situation by quarter:
- Q3 2015: $513 million
- Q$ 2015: $474 million
- Q1 2016: $388 million
- Q2 2016: $279 million
Ouch. Almost half of its cash has burned up in the past year.
The newest product, the Omni, does not seem to have much consumer use. It has 6 cameras that can stitch together a 360-degree image, intended for use by VR professionals.
I don't think GPRO will go bankrupt anytime soon. I think it has a couple of years worth of cash and I think it'll be able to raise additional capital from some fools.
However, investors might have a short-term trade here. The Omni rig has created a breakout for GPRO stock, and there may be some upside here in the near-term. The 20-day and 50-day moving averages are close to crossing the 200-day moving average, which is bullish. The stock could rise to $18-$20 in the near-term.
After that, however, I would be very cautious. I don't expect next quarter's earnings to show much lift from the Omni product.
Mind you, there is one other possibility, and that's that some company buys out GPRO.
Lawrence Meyers is the founder and editor of the forthcoming stock advisory newsletter service THE LIBERTY PORTFOLIO. He is currently long GPRO.He can be reached at TheLibertyPortfolio@gmail.com .
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