Go Pro Q4 15A – Hero to zero?

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It may already be too late for GoPro to create an ecosystem.

• Go Pro warned on Q4 15 results as the critical holiday selling season has not been nearly as good as the company had been hoping.
• Q4 15A revenues are now expected to be $435m which is well below the consensus estimate of $511m which sent the shares down 30% in after-hours trading.
• Sell through from retailers has been slower than forecast raising fears that people are increasingly using their smartphones to capture video rather than a dedicated device.
• Despite its sporting image, family is the number one use for a GoPro and the improving capabilities of the smartphone now appear to be good enough for a number of potential GoPro users.
• GoPro has also announced that it will cut 7% of its workforce and reallocate those resources to its growth priorities.
• I think that the growth priority for GoPro should be to take its products and its users and create an ecosystem around them.
• The problem is that I do not think that GoPro has really considered an ecosystem strategy and as a result is now suffering the consequences.
• Creating an ecosystem takes time and this sudden slowdown has meaningfully reduced the available time to act.

• There is no doubt that GoPro makes fantastic cameras and its ability to cram 4K video with good frame rates and storage into such a small package and still have good battery life is second to none.
• However, the competition is not standing still and inexorably it will continue to close the gap on GoPro and erode the hardware advantage away.
• With a slowing market for its products means that GoPro must find another way to engage with its users to ensure that they will always buy a GoPro product and that they will pay a premium for them.
• It is still not too late as its hardware is still far ahead, the urgency for a focus on the user experience and the ecosystem, has become acute.
• In the meantime, the outlook is pretty tough and estimates will now be slashed from the 15% growth predicted by the consensus estimate for 2016.
• Fortunately, GoPro’s PER multiple is now at a much more reasonable level but with estimates in free fall, it is likely fall further.
• It is at this point that it could become an acquisition target and I could see Google, Sony or Amazon considering on picking up GoPro at a bargain price.