I harbor serious doubts about GoPro and so, in a case of guilt by association, I’m not bullish on AMBA at this time. In September, Barron’s published a bearish article on GoPro and I thought the arguments were rather compelling:
At least twice in the past nine months, GoPro shares have tumbled on Apple-related news. In January, the mere issuance of a camera-related patent to Apple sent GoPro shares down 12%.
Even seemingly positive news from Apple has been overlooked. At the company’s keynote address a few weeks ago, it added GoPro support to its Apple Watch, enabling the watch to serve as a viewfinder for GoPro cameras. But Apple also upgraded the camera in its iPhone to a 12-megapixel sensor capable of producing high-resolution 4K video. GoPro shares tumbled 10% on the news.
And it’s not just Apple that causes concern. Sony (SNE) makes image sensors for GoPro’s cameras, which puts GoPro in a vulnerable spot, considering that Sony sells its own wearable action cam. And earlier this month, Alcatel OneTouch, a unit of China-based TCL Communications, announced a new waterproof smartphone called the Go Play. Taking on GoPro directly, the news release boasts, “The Go Play is not only waterproof, it shoots pictures and videos underwater.”
From http://www.barrons.com/articles/gopro-investing-as-an-extrem…
Basically, analysts in the article expressed two primary concerns: commoditization and smartphone takeover of the market. Let’s examine these two threats in more detail:
1) Commoditization – That the product could soon become commoditized due to competing products from Sony and other manufacturers. I believe we’re seeing this happen as we speak. One of the telltale signs of when a product is becoming a commodity is the loss of pricing power. Well, since Barron’s has published that article, GoPro has slashed the price of the Hero4 Session by $100…twice! Once in late September:
http://seekingalpha.com/news/2799646-gopro-launches-200-hero…
And again yesterday:
http://seekingalpha.com/news/2966206-gopro-cuts-hero4-sessio…
I’ve also seen Thanksgiving sales promoted on Amazon of Sony’s action camera lines. Indeed, I’m beginning to think of GoPro like Tivo. When Tivo came out it was an amazing product that revolutionized the way America watched television. But its product was quickly commoditized by cable providers and Tivo never became the great investment I imagined it would be.
In the same way, GoPro revolutionized (albeit in a smaller fashion than Tivo) the way we photograph and take video of different activities in life. But I openly wonder if GoPro is not destined for a similar path to Tivo as a company and an investment because of commoditization.
2) Smartphone cannibalization – In the right case, one built to protect it in a rugged environment, it is definitely feasible that a smartphone could be well protected from most elements and all but the most extreme of sports.
I also think it is within the realm of possibility that if there was enough of a market for this niche, which there does seem to be, one of the cell phone hardware companies would even make a more rugged smartphone model for this very thing. I don’t think that’s an outlandish possibility in the least.
Before the days of smartphones, when cell phones were just used for texting and making actual phone calls, Nextel had a very popular line of rugged phones used by blue collar types. All of the employees at my place of work were issued one by my employer. I think there will be a line of smartphones one day fitting this style again.
Even if not, each new generation of Corning’s Gorilla Glass gets tougher and Corning recently released their Project Phire glass, which combines elements of scratch-resistant sapphire with the toughness of the latest Gorilla Glass generation. Or that other protective methods of making cellphones more durable are also being advertised, like Motorola’s new Shattershield technology:
https://www.youtube.com/watch?v=Zjw1KRNaK9k
Technology is changing fast and smartphones have thus far become the technological version of the Swiss Army knife, an amazing device capable of doing multiple tasks in one convenient package. I do not, in anyway, find it hard to imagine that a smartphone in the near future could assume this task as well while also being stronger and more durable than ever.
The fact that the Barron’s article mentioned a smartphone already being marketed to the action audience only hammers that point home more.
Because of my concerns with GoPro I cannot help but be skittish about AMBA too, though I recognize and acknowledge the growth prospects Neil mentioned upboard. Particularly, body cameras on police officers and drones.
But there are a host of thorny legal and regulatory issues for these growth avenues to hurdle before going too much further, IMHO, and I wonder if products like this can navigate these obstacles before becoming commoditized as well. In the meantime, I’m just not sure if these growth opportunities can overcome GoPro’s declining sales.
These are obviously just my thoughts and I could easily be wrong about everything expressed above. Indeed, the fact that both Saul and Neil and others I hold in high esteem on this board are so bullish on these stocks, almost ensures that I am missing something. Nevertheless, these are the thoughts I’ve had for the past few months for these companies.
- Matt