Market Overview

Drones Won't Save GoPro

Drones Won't Save GoPro

There has been plenty of talk about the Drone market being the next leg of growth for GoPro Inc (NASDAQ: GPRO), but Detwiler Fenton analyst Alex Arnold feels otherwise. This is also a negative read-through for key GoPro supplier Ambarella Inc (NASDAQ: AMBA).

Falling Behind

"Note that most drones have a primary use of flying cameras around, hence the inherent synergy with GPRO as a maker of cameras. Nonetheless, we are seeing a pricing rationalization and also technological innovation of this market underway that we believe will outpace GPRO," Arnold wrote in a note.

For example, market leading DJI just introduced a new line of Phantoms (series 4). While the price point is aspirational at more than $1,000, the functionality is impressive. These new drone effectively fly themselves with collision avoidance and hovering/stabilization capabilities that have yet to be seen in this market.

Related Link: Analyst Sees GoPro At $15 Despite 'Humiliating' Quarter

More importantly, DJI's entry, knocks the 3 series down by about $200, bringing the lower end of the line to $500. Note that the 3's are a very strong product line regardless of the 4's advances.

"With a GPRO drone expected to launch in the $800-1000, we are highly doubtful that it will better than (or even competitive with) DJI offerings. Having an option that is just OK is unlikely adoption beyond the brand recognition advantage that GoPro possesses," Arnold noted.

Retailers Supporting Other Brands

Meanwhile, retailers are broadening support to other brands with cheaper price points as they may be able to move with better margins. This could provide some tailwind for other players in the space such as a Garmin Ltd. (NASDAQ: GRMN).

Related Link: Morgan Stanley Sees 'Minimal' GoPro Risk To Ambarella

Arnold said it seems like GoPro's panicked approach may have done some sustainable damage to the brand, as his field checks say that the market is very soft. The gist is that after a very promotional Holiday cycle, there is a belief out that consumers are expecting a 25 percent discount on the company's cameras.

"With discounting and promotion, we've seen a rolling off of the Action Camera market in recent quarters, but even with lower pricing theoretically driving demand we're starting to see unit declines. As such some are wondering if we have peaked in the category," Arnold said.

"The takeaway is that GPRO doesn't appear to have gotten the lift for which it had hoped after panicking over Holiday and slashing prices to move excess inventory," Arnold added.

Shares fell 10.6 percent Tuesday on no company-specific news. Year-to-date, the stock is down 32 percent.

Latest Ratings for GPRO

May 2020WedbushMaintainsNeutral
May 2020Morgan StanleyMaintainsUnderweight
Mar 2020Morgan StanleyMaintainsUnderweight

View More Analyst Ratings for GPRO
View the Latest Analyst Ratings


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