GoPro’s Problems Worsen With Drone Recall
Rating on shares is lowered after action-camera maker pulls Karma from market
GoPro Chief Executive Nick Woodman introduced the Karma drone in Olympic Valley, Calif., in September. GoPro pulled the drone from the market Tuesday after some of them lost power in flight
By
GEORGIA WELLS
Nov. 9, 2016 5:01 p.m. ET
GoPro Inc.’s recall of its first drone caps a string of snafus that have knocked the action-camera maker from its pedestal of Silicon Valley hardware darling.
On Tuesday, GoPro issued the recall and pulled its new Karma drone from the market because
a few of them lost power during flight. The company didn’t say what caused the power loss.
The grounding of GoPro’s drone ambitions follow production delays, missed deadlines, bungled launches and lower sales expectations in recent months.
“GoPro has done a lot of things to discourage their customer base,” said Charles Anderson, senior research analyst with Dougherty & Co. Mr. Anderson lowered his rating on GoPro’s shares to “sell” from “neutral” on Wednesday.
A spokesman for GoPro said it is optimistic about its prospects in 2017. “We’re hoping to have a good year with strong demand, strong marketing and sales execution, and a year with much lower operating expenses,” he said.
The Karma comprised a small part of GoPro’s business—just 2,500 were sold since its launch two weeks ago, GoPro said—but its challenges provide an example of GoPro’s struggles to execute. Its share price has fallen 88% since its high two years ago. Shares in GoPro fell 4.1% on Wednesday.
The company had already disappointed investors last week when it said
quarterly revenue fell 40% and shipments of its new flagship camera were delayed because of production issues that could seep into the holiday season. It also said it expects to record a loss next year, even as it vowed to slash $130 million in costs.
GoPro isn’t the only hardware company to be hit by production problems. A recent spate of recalls highlights the difficulty in bringing safe, highly technical products to market.
Samsung Electronics Co. in September
recalled its high-end Galaxy Note 7 phones after reports that they combusted. Earlier this month, high-end electric skateboard maker Boosted Inc. stopped shipping all boards and
warned customers not to ride or charge a certain model while it investigated reports of battery overheating.
GoPro burst onto the scene a decade ago with small, light cameras that adrenaline addicts attached to surfboards, mountain bikes, ski helmets and more. A skyrocketing share price after the company’s public offering in 2014 solidified GoPro’s spot as a Silicon Valley hardware darling.
In 2015, cracks started to appear. In the summer,
GoPro mispriced the launch of its first everyman camera, meant to draw more of a mainstream audience that takes pictures with smartphones.
The development of the drone was part of GoPro’s turnaround effort after the cheaper camera’s flop.
‘If a company is going to at least triple what they’re spending on research and development, I want them to deliver significantly better products.’
—Charles Anderson, senior research analyst, Dougherty & Co.
GoPro has pumped money into research and development to develop its new products. Research and development costs soared to 14% of the company’s sales last year, from 4% of sales in 2011, according to Mr. Anderson.
“If a company is going to at least triple what they’re spending on research and development, I want them to deliver significantly better products,” Mr. Anderson said.
GoPro
initially targeted its drone debut for the year’s first half. In May, Chief ExecutiveNick Woodman said the drone would be delayed, but still arrive in time for the holidays. A person working on the drone project at the time said GoPro was struggling to incorporate special features such as a separate remote control versus enabling customers to use their smartphones as controllers and sections that folded to fit in a backpack.
Most analysts expect the drone to be a small part of GoPro’s business, and bring in less than 10% of the company’s revenue next year. But the drone was a symbol of GoPro’s efforts to attract new users to its devices.
GoPro said it plans to resume shipment of the Karma drone as soon as the power issue is resolved.
