GoPro Inc (NASDAQ: GPRO) is off to an incredibly strong day in the market today. Ultimately, the social crowd seems to be pointing to an outdated Seeking Alpha article as the reason for the gains. Nonetheless, our partners at Trade Ideas were the first to alert us to the movement. At the moment (12:47), GPRO is trading at $9.02 per share after a gain of $0.50 per share or 5.92%. However, if I had to make a bet, I would bet that these gains wouldn’t last long. Here’s why…
GPRO Doesn’t Offer Much
GoPro’s flagship product is an extreme action camera. I will admit that I own one of these cameras, and for all intensive purposes, it’s a great product. I attach the camera to my kayak and head down the rapids for great footage. However, think about how many people would actually want something like this.
Sure, there are quite a few people interested in extreme action sports, and even filming their own endeavors in this category. Nonetheless, this category is a very niche category. This means that on the grand scale, the audience that would actually be interested in buying the company’s flagship product is a relatively small one. After all, do you plan on strapping a GoPro to a kayak or a helmet and filming your endeavors any time soon? If you’re like most people, the answer is no!
The Company Is Desperately Lacking Innovation
When GoPro camera’s first came out, they were hotter than fire. They were the first thing that the world had seen that could do what they could do. However, as competition stepped into play, GPRO has simply failed to innovate. Sure, the company launched the Karma drone, but we all know where that’s going… down!
The bottom line is that a single solid product, while impressive in the short run, does very little for technology companies in the long run. At the end of the day, for GPRO to continue on an upward trend, it needs to be part of the latest and greatest in Tech. Unfortunately, they are failing miserably at doing so.
Want To See Something Ugly? Look At GoPro’s Balance Sheet
Another major issue for GPRO has to do with money itself. At first glance, things look pretty good. The company has about $75 million in their balance sheet and a credit facility that makes $82 million available upon request. Not to mention, a recent convertible debt offering that brought $92 million in. So, all in all, having $249 million to play with really doesn’t sound all that bad. That is, until you look into the company’s most recent performance.
In the last quarter, GPRO lost around $111 million. That’s a big chunk. If they do the exact same thing in the next two quarters to follow, they are going to go broke quickly. In fact, by the end of the third quarter, the company will be reaching for shoestrings, hoping that one has money on the end of it. At the end of the day, the data shows that the company is running out of money quickly. Sure, they could do another offering at the expense of investors, or even borrow more money, once again at the expense of investors. However, whatever they do, it’s going to be at the expense of investors.
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The Bottom Line Here
At the end of the day, GPRO has created an incredible product. The problem is that the product is tailored to a very small percentage of the global population. Without further innovation and an ability to expand its audience, the company is likely to run out of money very soon. As a result, investors will likely realize the one thing no one wants to see in the market, diminishing returns!
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