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Will the Karma Drone Help GoPro Soar to its Past Highs?

Zacks

After an uninspiring couple of years, GoPro, Inc. GPRO finally seems to have a few ace gadgets up its sleeve. Following weeks of attention-grabbing teasers, the action camera maker officially unveiled its first drone – Karma – at an event in Squaw Valley, CA yesterday.

GoPro also launched the first significant update to its flagship line of action cameras in two years — the new Hero5 camera, and the smaller, cube-shaped Hero5 Session.

GoPro shares were up 8% at one time during the much-awaited event, but later fell and closed 2.3% higher.

Karma: The Specifications


Priced at $799, the Karma is a compact, sleek quadcopter, with props that fold into the device. It has one button for takeoff, landing, and returning to home and comes with four pre-programmed shots: dronie, cable cam, reveal, and orbit.

GoPro’s Karma works with a controller that has two joysticks, a few buttons and a touch screen. Its simple design makes it easy to use for amateurs, with several pre-set routes to take neat selfies and videos with gradual reveals of landscapes.

GoPro is also offering a "passenger app" that allows another person to see the live video feed from the drone and even control the camera position. The front positioning of the camera is intended to help eliminate the appearance of rotors, which can crop up in shots with DJI or Yuneec drones, when they fly forward at full tilt.

A distinctive feature of the camera is that it easily detaches from the drone and attaches to a handheld gimbal. The drone can be hooked up to Hero4, Hero5, and the Session cameras.

We believe that as the first drone from an established brand with a huge, loyal fan base, Karma will draw huge attraction from consumers.

The Hero5 Cameras

The company also showcased the latest version of its signature line of cameras – the Hero5 – and the smaller Hero5 Session. The Hero5 is now waterproof without additional casing and includes GPS with a great voice control feature which supports 7 languages. The company has also improved its image stabilization pre-edit, which can ensure really smooth footage at break-neck speeds. Further, Hero5 Session — a simpler, smaller version of the Hero5 —can now shoot video in 4K resolution.

GoPro also unveiled an app Quik, which will enable users to instantly edit their GoPro footage on their phones and create short videos for networking sites like Facebook and Instagram.

The Karma hits stores on Oct 23 and the new camcorders are scheduled to go commercial on Oct 2. GoPro’s drone – which comes with a backpack and controller – can be packaged with the Hero5 Black and Hero5 Session for $1,099 and $999, respectively.

Karma’s Hand in GoPro’s Fate

Karma has entered the burgeoning market for consumer drones as one of the first models that is more than a plaything. However, the market is already stuffed with devices from companies like DJI, Yuneec and 3D Robotics. Further, the quadcopter is releasing at a time when several cities and businesses are restricting such aircraft from their skies.

Analysts expect GoPro to sell about 100,000 drones this year, generating sales of over $50 million. While this figure might be somewhat insignificant for a company that posts $1.5 billion in annual revenues, we believe that it could restore the company to profitability. GoPro has had a tough time of late, with ill-timed product missteps & delays, strategic pricing errors, and intense competition from Sony Corporation SNE and China's Xiaomi.

With Karma, GoPro is veering outside its core video-capturing devices, and its success or failure is likely to shape the company’s immediate future. This winter holiday season will be a test for consumers’ appetite for the new products, and is likely to foretell the success of the new drone.

Summing Up

GoPro’s last action camera upgrade – the Hero4 – was outrageously successful, and drove a spike in sales and record profits. However, the craze eventually died away and the company’s stab at a new design — the Hero4 Session — faltered.

GOPRO INC-A Price and Consensus

GoPro’s revenues plunged to almost half year over year in the first half of 2016. However, the action camera maker has done a great job of clearing out channel inventory and streamlining its product portfolio. It has also taken huge strides in developing content distribution and software recently.

After three quarters of sharp year-over-year revenue declines, GoPro has finally created a product lineup that could potentially reverse the trend. However, in order to achieve its full-year sales target, it needs to generate about 70% of the same in the second half of 2016 (compared to an average of 58% over the past four years).

The Hero5 is attractively priced ($100 less than the previous version at launch) and boasts several new, interesting features. It’s reasonable to assume that the new camera will spark interest. However, Karma seems more of a wild card. GoPro will have to contend with ample competition in that market, but again, GoPro has priced its drone very competitively, which should work in its favor.

It will be quite interesting to track GoPro’s stock price gyrations, as consumers absorb and decide whether Karma and Hero5 are good enough to change this Zacks Rank #3 (Hold) stock’s dwindling fortunes.

Stocks to Consider

A couple of better-ranked stocks in the broader consumer discretionary sector include Electronic Arts Inc. EA and Hasbro Inc. HAS, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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