GoPro – which makes a single gadget, wearable cameras – had a dizzying IPO on June 25 and went on to soar from its IPO price of $24 a share to $49.90 a few days later, at which point it had a market capitalization of over $6 billion. That was on July 1. The financial media, and soon the rest of the pack, went gaga over this phenomenon. Excitement begat more excitement. The sky would be the limit.
But apparently, the sky was covered with ominous low-hanging clouds. The stock is now down 26% from its peak. The thing is, Barron’s came out with an article over the weekend, somewhat calamitously titled, “GoPro’s Thrill-Filled IPO Adventure May End Badly.”
If I were to say things like this, it wouldn’t cause a ripple. But Barron’s carries a lot of weight with traders, and it does move stocks. Because everyone knows that an article in Barron’s moves the price of the stock up or down, depending on the slant of the article, everyone reacts to it, and it becomes a self-fulfilling prophecy.
But to profit from it, you have to know days in advance what will be published in Barron’s.
So Barron’s points out that the company, even after its recently battered share price, still has “a sky-high multiple of 83 times last year’s earnings” – which, by Silicon Valley standards, is actually pretty low, considering that even some of the most prominent outfits, like Twitter haven’t figured out yet how to make any money on a GAAP basis and have, therefore, infinite earnings multiples.
Then Barron’s added this deadly statement:
At its core, this is still a gadget company. GoPro sells its entry-level Hero camera for $199. Last year, sales totaled $986 million; earnings were $61 million.Citing research from NPD Group, GoPro says the sales added up to 45% of the U.S. camcorder market in 2013. It’s worth noting that the rest of that market has been decimated by smartphones in recent years.
It’s hard to find stand-alone gadgets that haven’t been subsumed by our phones. GoPro, though, still risks suffering a similar fate. The cautionary tale is Flip, the groundbreaking camera that Cisco Systems bought for $590 million in 2009. The Flip was a miniature marvel, bringing the world high-definition home videos from a device that easily fit in a back pocket. Nifty idea, but it was a feature, not a product, as Apple’s iPhone soon made clear. Cisco shuttered the Flip business just two years after its purchase.
So on Monday, GoPro tanks another 5%, on a day when the market is soaring. But it has been tanking for days!
An article like this isn’t written and published overnight in Barron’s. There’s a process. People are involved. Computers and networks are involved. And so it raises the ancient question who knew what? Who knew last week when the stock started dropping that Barron’s would prick GoPro’s bubble? Barron’s could have chosen to prick the bubble of any of the hundreds of stocks whose bubbles lift them toward the sky. Anyo of them would have crashed. It chose GoPro. Any shorts in the know made a killing.
Which raises an even bigger questions: Where are GoPro’s hype mongers, now when you need them the most? Clearly, they dropped the ball. They were unprepared. They didn’t know about Barren’s piece. Perhaps they were too busy hyping other stuff. And there is a lot of stuff that has to be hyped. These people are getting spread pretty thin; they can’t be everywhere at once.
Yet, they practically have to be, at least in this kind of market, given that fundamental realities no longer apply. Wall Street hype and the Fed, that’s what the wealth of this nations increasingly depends on. Not a propitious thought.
And another company send out a warning about the wealth transfer machine: Wall Street hype meets “retail funk.” Read….. IPO Hype-Miracle Gets Crushed by Reality