This has been a disastrous month for GoPro, Inc. (GPRO - Free Report) and its shareholders. Capping its recent string of operational goof ups, GoPro announced a recall of its new Karma drone after a mere fortnight of its commercial launch, as a few of them lost power during flight.
The company's stock had barely taken a breather from its downfall after its bleak third-quarter earnings results released on Nov 3 and it’s in a freefall again. Just after the news of the recall became public late on Tuesday, GoPro shares were down over 5% at one point. The decline continued in the trading session yesterday, as the stock closed 4.1% lower.
Karma's Bad Luck
Karma is GoPro’s long-awaited quadcopter drone that is compatible with GoPro’s latest line of cameras, the Hero5.
Reports of some Karma drones losing power during flight and then crashing to the ground, prompted the company to recall all 2,500 units it sold and pull Karma from the market. The malfunction could pose a serious safety hazard, although the company assured that no injuries or property damage has been reported. It assured buyers that they could return their units to GoPro, or their place of purchase, for a full refund. As of now, replacement units are not being offered.
GoPro intends to resume shipments of Karma as soon as the issue is resolved.
GoPro’s Credibility in Question
The recall adds to valid concerns about GoPro’s credibility, after it reported dismal third-quarter results last week. The action camera maker reported a loss of 70 cents per share, which missed the Zacks Consensus Estimate by a whopping 30%.
GoPro’s revenues also plunged drastically from the prior-year quarter’s tally to $240.6 million (down 40%). Further, the company also reduced its sales target for the year, expecting a weak holiday season. GoPro also said it estimates to record a loss next year, in spite of plans to cut $130 million in costs.
GoPro’s Hero 5 cameras and Karma drones were already facing production issues and delayed shipments, which were expected to restrain the company's ability to meet demand even in the upcoming all-important holiday season.
GoPro’s share price has fallen almost 59% in the past one year.
GOPRO INC-A Price, Consensus and EPS Surprise
Rocky Road Ahead
The grounding of GoPro’s drone dreams follow multiple operational stumbles including messed up launches, production delays and missed deadlines in the recent past.
Karma’s success was considered an integral part of GoPro’s return to growth, along with the Hero5 cameras. In fact, the company was hopeful that Karma would prove to be a hit during the upcoming holiday season, having just gone to market on Oct 23. Further, the demand for GoPro's new Hero 5 camera looks quite weak so far.
Now, with Karma temporarily out of the picture ahead of the all-important holiday season, we believe that there might be reason to expect that GoPro's fourth quarter might just be no better than its third.
GoPro presently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks in the broader consumer discretionary sector include Electronic Arts Inc. (EA - Free Report) ,Take-Two Interactive Software Inc. (TTWO - Free Report) and Activision Blizzard, Inc. (ATVI - Free Report) .
Electronic Arts is an entertainment company with an impeccable earnings history, with average surprise of 29.9% over the trailing four quarters, beating estimates strongly all through. The company sports a Zacks Rank #1 (Strong Buy).
Take-Two Interactive Software develops, publishes, and markets interactive entertainment solutions for consumers worldwide and also boasts a Zacks Rank #1. The company has a striking earnings surprise history over the trailing four quarters, having beaten estimates by a huge margin in each of them, for a remarkable average of 118.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Activision Blizzard develops and publishes online, personal computer, video game console, handheld, mobile, and tablet games and holds a Zacks Rank #2 (Buy). The company has beaten estimates thrice over the trailing four quarters for an average surprise of 28.4%.
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