This column has been updated to note GoPro's recent Karma drone recall, and the recall's impact on GoPro's shares.
Much like Fitbit (FIT) , GoPro (GPRO) appears hemmed in by an addressable market for its core products that's much smaller than the company and its biggest fans once hoped. Unlike Fitbit, it's also contending with tough, well-entrenched competition in a market it has bet will act as a growth engine in the years to come.
The company's latest results and guidance bear this out. And a recall for its newly-launched Karma drone isn't going to make achieving the latter any easier.
Last Thursday, GoPro reported third-quarter revenue of $240.6 million (down 40% annually) and adjusted EPS of negative $0.60, well short of consensus analyst estimates of $313.4 million and negative $0.35. The company's guidance for the fourth quarter--a giant one both due to seasonality and the company's massive fall product refresh--was also light: Revenue of $625 million (plus or minus $25 million) and adjusted EPS of $0.30 (plus or minus $0.05) versus a pre-earnings consensus of $666.1 million and $0.43.
Shares fell 11% from Thursday's close to Monday's, before bouncing a little on Tuesday. The fact GoPro was already down 88% from its October 2014 peak going into earnings, and trading for only about 0.8 times its consensus 2017 sales estimate after factoring cash on hand, prevented the selloff from being worse.
But GoPro is off another 5% on Wednesday (in spite of higher equity markets) after the company announced it's recalling the Karma on account of discovering that a small number of sold drones have lost power during operation for unknown reasons. GoPro also disclosed it has only sold 2,500 Karma units to date; the drone was first unveiled on September 19.