A year ago, GoPro Inc. (NASDAQ: GPRO) was in the midst of the most difficult stretch in its relatively short history. The Hero Session launch was a disaster, the product line had become too complicated, and there was too much inventory. This combination led to a decline in the business that's still evident today.
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To turn the business around, GoPro has to learn lessons from 2015's mistakes. And so far this year, there's been both good and bad news about how the company has changed it approach.
Don't build inventory customers don't want
GoPro made three key mistakes in 2015. The first was that it let the product line get too complicated with six cameras, confusing customers. The second was mispricing the newly launched Session camera, which started at $399 only to eventually drop to $199 by the time holiday season rolled around. But the key mistake GoPro made was overbuilding inventory that customers didn't want to buy. This eventually led to writedowns and the losses that sent the stock into a tailspin.
The holiday season is nearly upon us again, and it seems like GoPro is learning from last year's mistakes. The product line is simplified and price points seem right. And one key factor I've been watching as Black Friday sales approach is that GoPro cameras are being heavily promoted but not discounted. That tells me that inventory is where it should be, as neither GoPro nor retailers see the need to offer discounts to get inventory out the door.
The Karma drone has been grounded for now. Image source: GoPro.
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Get your product launch right
Mispricing wasn't the only problem with the the Session camera 2015 launch.Customers didn't find the product compelling. There wasn't much new about the camera except a smaller form factor, and it didn't include important upgrades like image stabilization and voice controls.
Camera launches in 2016 came with both image stabilization and voice controls, and based on early reviews, the products seem to be doing well in the market. The Karma drone, on the other hand, has had an entirely different fate.
Karma was supposed to be GoPro's next big product, but its launch was delayed from spring to fall, and when it finally went on sale, it was quickly hit with a recall. Safety in drones is key, given the heightened regulatory environment. Recalling drones that could have lost power while flying is the right move, but the situation hasn't instilled confidence that GoPro can expand beyond its line of cameras.
When it comes to product launches, 2016 is a mixed bag.
Keep it simple
As far as the simplicity of the product line goes, GoPro is making progress, but it's not quite where it needs to be yet. Paring down the camera offerings from six to three models is a big improvement, but now there's a complex suite of apps that makes GoPro's software strategy confusing at best. The Capture app downloads content from cameras, Quik and Splice edit content, and GoPro VR plays virtual reality content. Why are there four apps and not one that combines all of these features?
If GoPro was trying to make its content easy to download, edit, and share, it's done so in a very convoluted way. And with smartphones improving their standard editing software, it's difficult to see why GoPro's app network is a benefit at all. There should be one app to keep it simple.
With great software, GoPro could make its cameras and drone more compelling. But its current app lineup is still a weak point in the product line even after the company spent the year trying to buy and build out better editing software.
Is GoPro in a trough or a downward spiral?
GoPro's reducing its product line and keeping inventory in check are great signs for the holiday season and the near term. But in the long term, the company needs to make compelling new products like drones, and software that makes capturing, editing, and sharing content easy. So far, it's not succeeding on that front.
Without improvement, the downward spiral that started last year could continue as competitors enhance their offerings and move well ahead of GoPro in areas like drones. That's what shareholders should be concerned about once this holiday season is over.
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Travis Hoium owns shares of GoPro. The Motley Fool owns shares of and recommends GoPro. The Motley Fool has the following options: short January 2019 $12 calls on GoPro and long January 2019 $12 puts on GoPro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.