Thursday, September 03, 2015

GoPro Stock Slips on AMBA Guidance, But GPRO Should Be Fine

GoPro has opportunities beyond just wearable sports cameras

GoPro (GPRO) stock slid Wednesday after HD video chipmaker Ambarella (AMBA) revealed weak guidance during its 2016 fiscal second-quarter earnings report.

Ambarella had solid earnings that beat analyst expectations, reporting revenue of $84.2 million — a year-over-year increase of 79% — but also stated that revenue for the next quarter is expected to be lower due to decreased wearable camera sales.

This news sent shares of both Ambarella and GoPro stock tumbling more than 12% and 9%, respectively, by lunchtime on Wednesday.

Clearly, Wall Street is scared of the prospect of a weakening wearables market, and considering that a sizable portion of Ambarella’s revenue stems from GPRO camera sales, both stocks have been feeling the effects.

Is GoPro Stock in Danger?


The real question, however, is whether the market for wearable cameras is actually slowing, and to what extent a slowdown might impact GoPro stock. In June, analysts with Citigroup (C) revealed that demand for wearable cameras, more specifically action sports cameras such as the Hero4, has been weakening in the U.S.

The Street responded by bailing out of GoPro stock, sending shares of GPRO tumbling nearly 6%. However, conflicting analysis from Piper Jaffray brought many investors crawling back. The result has been a roller coaster ride for shares of GoPro and Ambarella in the past few months.

If the Citigroup survey is indeed an accurate reflection of the wearable cameras market in the U.S., both GPRO and AMBA might be in serious trouble. But, although GoPro has made its mark as the leader in action sports recording and wearable cameras, management has been investigating and developing products to compliment another budding — yet explosive — tech market: drones.

In May, it was revealed that GoPro was working with quadcopter manufacturers to create a universal rig capable of holding multiple Hero4 cameras. And GPRO CEO Nick Woodman announced at the last Code Conference that his intention is to aggressively pursue drone cameras and virtual reality.

So, even if the market for wearable cameras is slowing, there are other arenas where GPRO cameras can thrive, and the drone industry looks like a perfect fit. However, the drone industry is far from stable, and it will be years before regulatory hurdles are overcome to create a drone-friendly environment.

That being said, even though the mass public might not be ready for the coming onslaught of camera-equipped quadcopters, a number of industries have already begun utilizing drones to maximize efficiency, reduce risks, and provide data otherwise unattainable by human employees. Provided GPRO remains on the front lines of the wearable cameras market, GoPro stock will stabilize as management makes arrangements with drone developers to incorporate GPRO technology.

Additionally, GPRO has been increasing its presence in the virutal reality arena, and if successful arrangements are made with quadcopter manufacturers, GoPro stock could see additional support via revenue from VR contracts.

Thanks to resources and capabilities from Kolor, a French video software company acquired by GoPro in April, GPRO has the potential to be a major player in the virtual reality market. With its industry-leading action sports cameras, and Kolor’s video-stitching VR expertise, the only thing missing is an arrangement to stick GoPro’s Six-Camera Spherical Array onto a capable quadcopter.

Bottom Line on Ambarella and GoPro Stock


Despite the recent panic-selling of AMBA and GPRO, stemming from Ambarella’s weak guidance for its 2016 fiscal third quarter, there are plenty of reasons to stick with GoPro stock.

Even if the wearable cameras market is slowing, it’s not dead … meaning that GPRO will still sell its iconic Hero4 cameras to action sports fans around the world. And AMBA will still be selling its silicon to GoPro.

But action sports isn’t the only arena in which GoPro cameras have an opportunity to dominate. Increased interest in drones for both commercial and recreational purposes means GPRO is in a position to leverage its reputation — if management can make a deal with a quadcopter manufacturer, or find a way to develop proprietary drones.

Lastly, GPRO’s acquisition of a French video editing software company is perfectly synergistic, creating a unique opportunity to take advantage of existing camera technology to produce comprehensive virtual reality environments.

Article originally appeared on InvestorPlace (09/03/2015)