The Headaches of Catching Your Dream — GoPro

Big Red Car here n what is shaping up to be a great day here in the ATX.

Well, only if you think 70F and sunny is a good thing. Yes, sayeth the Big Red Car. Sunscreen?

Today, in the cross hairs is GoPro. Not because the Big Red Car has any angst toward the company but because it demonstrates some interesting stuff.

You know GoPro, the camera you strap to your helmet while skiing and get those great videos of flying through the trees and powder until the big collision with that aspen tree. Still, it looks great!

Read on, dear reader. I’ll be videoing you as you read. Haha.

GoPro was a darling stock when it came public at $24 and shot up to almost $100. Big mo! Not so much recently. [Down in the $11 range today. Ouch.]

So what happened, Big Red Car?

First thing, dear reader, is that GoPro blew through its innovation leadership phase and other people caught up. This is the lot of success — you get noticed, you get copied, you attract attention and attention creates competition and competition means you have to get your jock on and compete. [Bit crude, Big Red Car.]

So what really happened?

Here’s what really happened:

1. An entire camera industry niche was created almost over night — “action” cameras.

GoPro owned it, at first. Now there is a lot of competition. They were the innovation and market leaders.

But, when you’re leading the pack, you have to outrun the pack. Every day. Ask APPL about that, no?

2. GoPro was an innovation leader and then it became a laggard.

No 360 degree panoramic offering. No drone offering though it can be mounted to somebody else’s drone (not a fatal flaw).

Others have these capabilities, not GoPro. Yet.

3. The company thought it didn’t have to spend on advertising and could rely on social media word of mouth and buzz. Wrong!

They are back advertising today and are committed to a comprehensive program for all of 2016. [The Big Red Car thinks this is going to make a huge difference.]

4. The company cannibilized its own product lines without retiring its old products simultaneously. This is a very technical but understandable problem.

When you have the best action camera in the industry and introduce one that is even better, you cannibalize YOUR OWN sales. Duh. A lot of this happened.

5. The company played around with its pricing and began to cut prices to drive sales. The new cameras were too expensive.

Not a bad strategy if you had seasonal sales — like a car year — but it didn’t work. The public began to expect a better price and then the company introduced an even higher priced, more capable to be sure, camera. You have to get the pricing right.

Their high end cameras account for 50% of revenue so if you mess with them, you are rocking the entire Casbah, baby. That could be a big problem.

6. It became a Wall Street darling “tech momentum” stock just like TWTR. When they decided to stop spending on televised marketing, some say they lost their mojo.

Live by the sword, die by the sword. You lose your mojo and you are fucked.

7. The company failed to hit its earnings numbers. It released guidance that it projected a substantial decrease in sales. The numbers were good just not great.

They outran their growth story and stubbed their toe but they did not lose a limb. Right now, it feels like Wall Street thinks they lost a leg.

This happens and there is a price to pay for it. That price is now only partially evident.

8. Then there is the issue of the CEO having paid himself a jillion dollars in restricted stock, his control of 74% of all the votes through multiple classes of stock, and a secondary offering that was a conduit for insiders to sell. All things that would have been taboo in an earlier time.

Technically, this is called “the stank” and the stank on this company is not good.

The CEO

Let’s be clear, the Big Red Car approves of a CEO controlling his company in any manner he can as long as the public knows it and prices it into the grand scheme. They have, apparently, done just that.

There is a call to replace the CEO — good luck with that, y’all. He controls 74% of the voting shares and he can decide who sits at his board table with complete impunity. Complete control. Bravo, sayeth the Big Red Car.

If he wants, he could put a Big Red Car on his board. Control. Absolute control. Which means he has nobody breathing down his neck. He can play polo three days a week if he wants. [You played polo recently?]

Recent development

Recently — like today — there has been a bit of chatter on places like Motley Fool that an $11/share price may ber a great entry pony to ride a dead cat bounce back upward.

A good trade in the short to mid-term. Maybe so. Maybe no.

Here is that article. Is It Time to Reexamine GoPro and Jump In?

Preach, Big Red Car

The most important thing the Big Red Car wants y’all to focus on is this.

1. Even exiting a venture funded investment with an IPO is not an end all. You still have to operate the company. Your just swimming in the deep end of the ocean. Where the big sharks live.

2. When you were an industry leading innovator, if you stop innovating, the sharks will come looking for you.

3. You have to market all the time and you will pay the price if your marketing doesn’t work.

4. When you broaden your product line — a good thing — you better watch how it impacts YOUR products. Don’t compete against yourself.

5. Wall Street will castrate you if you miss your numbers.

This ain’t bean bag, baby.

But, hey, what the Hell do I really know anyway? I’m just a Big Red Car. BTW, I just got a new GoPro camera and it’s pretty damn cool.

 

 

 

  • Really?

    Great study in over controlling the company and an attempt at the market. Founders bias limited his vision that others embraced like the Drone mounted version. or putting cameras in googles, more convenient application of the camera sport thing that GoPro could have OEMed working with others, but they wanted to define the market! Truth is the Market defines you if you are smart. Also wasted tons of time trying to recreate a GoPro YouTube offering, silly waste of time without a partner.
    Like the control of the company CEO extended and still tries to extend control to that which he has no potential to control. Riding the horse is not about control, it is a partnership of wills!

  • All good points JLM.

    As far as making money in stocks, it’s often good to buy boring companies with a razor blade: ADP, Visa, Wells Fargo, etc

    Not as exciting as the thrill of 24 to 88 a share, nor as death defying as 88 to 11.

    No matter how great the next camera, how many have one that is good enough? Might be especially true for their age group of buyers.

  • Juan Aguilar

    As always a great read. Thanks Big Red Car!

  • sigmaalgebra

    BRC: Please look in your glove box of business strategy wisdom, find your notes, and explain how to introduce a new and better product in a way that does help the finances of the company and is not a strategic error of “competing with” self?

    • JLM

      .
      It’s just like the Texas Two Step.

      MS Word 2013 is introduced while MS Word 2007 is shitcanned.

      MS announces, “We will no longer support MS Word 2007,” and the lemmings line up for the bungy chord ride without the bungy chord?

      BRC
      http://www.themusingsofthebigredcar.

      • sigmaalgebra

        Sure. That approach to product obsolescence has helped MSFT make money. Indeed, it has appeared that the long, grim history of security problems were not a bug but a feature — a reason to get users to buy the newest version and drop support for the old version.

        What I am missing is the claim that how introducing a new product that “cannibalizes” an old product is so easily a serious strategic error.

        For me, I got a copy of Office 2003 really cheap as a part of the Microsoft program “Hands on Training”. At times there were patches and security updates. I use Office a little occasionally and don’t like it. For security, I’m sure never to let Office read a file from an untrusted source.

        Since Office 2003 is software, it doesn’t wear out and is still as good as it was 13 years ago which, for anything like Office, is fine with me.

        My main word whacking is via D. Knuth’t TeX, and it has essentially no bugs or security problems at all and is the unchallenged international standard for high quality word processing in all fields with a lot of math and easily presents math with quality fully up to the best of traditional math-science typesetting, e.g., as by the American Mathematical Society. I could use some darker fonts and some better Adobe fonts for PDF versions. I understand that such fonts exist, but for now I’m just staying with the installation I have.

        I can’t stand to write software in a spreadsheet — I have several alternatives that work much better. E.g., for the attached graph, generating the data with a Excel spreadsheet was a disaster — got a huge spreadsheet file that ran far too slowly. So, I just wrote a little code, generated, the data right away, easily, and had Excel read the data, graph it, put the graph on the system clipboard, and have PhotoDraw convert it to a PNG file as displayed.

        One issue I do see: If I had a lot of files of input for Office, e.g., files with extension DOC or RTF for Word and got a new version of Word that replaced my old version, then maybe some of my old files, that at long effort I finally got to look like I wanted, would no longer look like they did or might not even work at all. Bummer.

        So, I’d need a way to run both versions of Word, and likely getting that to work would be mud wrestling with undocumented prerequisites.

        That is, a big company like Microsoft tends to want to stay with some politically correct fiction that, of course, everyone wants only the latest and greatest version of our software so that installing the latest version replaces the older version. Huge bummer. No serious production computer shop takes that attitude; instead they at least want to run the new version off-line on their workload until they are thoroughly convinced that there are no new bugs; one problem along those lines and the CIO’s daughter drops out of college, and her dad gets a new career direction.

  • JLM

    .’

    CEOs of venture backed companies should study the GoPro story. Learn from it.

    http://themusingsofthebigredcar.com/the-headaches-of-catching-your-dream-gopro/

    BRC
    http://www.themusingsofthebigredcar.com