At its core, GoPro(NASDAQ: GPRO) makes cameras, which are not particularly exciting products, given that just about every cell phone is also a camera. What sets it apart is that GoPro cameras are built to withstand extreme and harsh treatment. The technology is, in fact, pretty cool, but the cool factor wasn't enough in 2023's most important selling season.
Here's why 2024 is starting off on a weak note for GoPro.
GoPro has a particular type of customer
If you head to GoPro's YouTube channel, you'll find beautiful footage of people swimming underwater with jellyfish, others riding a wave, nature videos of wild animals, and then a lot of videos of people doing death-defying stunts that would curl the toes of most human beings. The cameras the company makes are purpose-built for that last grouping. They're tough and include features specifically designed to adjust for the inherent volatility of filming in what many would consider highly risky conditions, like skiing down a cliff or jumping out of an airplane.
Image source: Getty Images.
The products are pretty cool. But there are only so many people who engage in such exciting activities. So there's something of a limited market for the company's rather expensive cameras. That issue came into focus in the fourth quarter of 2023.
The fourth quarter is the most important for most retailers because it includes the holiday selling season. GoPro, which sells cameras through retailers, started its fourth-quarter 2023 earnings release off with a host of upbeat bullet points about all of 2023, but it didn't say anything about the fourth quarter. That's because sales fell 8% year over year. Earnings fell to a $0.02-per-share loss in the quarter, down from a $0.02 profit in the same stanza of 2022. Notably, the company's more expensive cameras accounted for 74% of device sales in the fourth quarter of 2023, compared with 90% in the prior year.
GoPro ended 2023 on its back foot
As the preceding chart shows, investors are clearly worried about GroPro's financial results. The stock has trended lower along with quarterly earnings on a year-over-year basis. It seems the question of market size is increasingly relevant. As the camera maker enters deeper into 2024, investors need to be watching the sales figures. If the company's sales continue to decline, GoPro could have a material problem on its hands.
That said, management isn't sitting around and doing nothing. It's trying to shift its business mix so that there's a larger subscription component. In addition to the cameras it sells, it also offers camera owners tools for editing, storing, and distributing their videos. This is a good move, as subscriptions provide annuity-like income rather than the one-time cash benefit that comes with the sale of a single camera. Only camera sales through the retail channel made up 77% of the company's revenue in the fourth quarter of 2023. That's all device sales, so selling physical products through retailers is vitally important to the company's success.
Notably, those devices are the gateway into the subscription services GoPro offers. So without solid product sales, even a subscription business could have limited success. That said, subscription revenue increased 18% year over year in 2023, so this is an exciting business to watch. However, you can't forget that it's intrinsically tied to the sale of cameras.
This is not GoPro's best side
In all, 2023 wasn't a great year for GoPro, and it ended on a weak note with a year-over-year shortfall in the vitally important holiday selling season. The company could turn things around in 2024, given that 2023 offers easy comparisons. But should results continue to weaken, investors need to consider whether GoPro is really capable of remaining a standalone business. Given the stock price declines of late, it seems Wall Street isn't sure that it is.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
