In the Looming Bust

In July 2014 I wrote an article on GoPro and why I predicted that company, and its post-IPO stock, to be severely overvalued. I received dozens of emails from readers who were unhappy with me “bashing” what folks think is a very innovative product. Don’t get me wrong, for I also think it is a beneficial and cool product, and actually, I would actually love to have one for recording some of my own unique memories.

I stated that the IPO was ridiculously saturated with irrational exuberance, and the immediate surge in its stock after the IPO was unsustainable do to myriad factors starting with the usual suspect: the Fed-inflated stock market that propped up the stock’s bullish run on steroids right out of the IPO gate. Additionally, I thought the company was riding the tide of the Narcissistic generation’s expression of self-love through endless video selfies. (Look at me! Here I am! Here I was! There I go! Booyah!) Remember, action cameras are still a niche market. The company’s customers have been buying $200-$400 cameras on credit, and as is often the case with fast-moving technology, GoPro blamed a large portion of that miss to weak sales of the ice-cube sized HERO4 Session. CEO Nick Woodman admitted that the company had “priced the products too high at $399, which caused consumer confusion” between the identically priced (and more popular) HERO4 Silver. The subsequent $100 price reduction for the Session in September caused a $19 million writedown for the quarter. Woodman also admitted that GoPro “underfunded marketing in the second and third quarters of the year,” and it would take a “more aggressive advertising approach in the fourth quarter” with a return to TV ads.

So there you go – product pricing, customer confusion, and a lack of money being thrown at marketing are given as the reason for the 2015 dive. This is while the company’s sales and marketing expenses actually rose almost 40%. But this is to be expected from the devotees of Wall Street who run amok in the financial press. Responsible executives of this company should have skipped this stock buyback buffoonery and invested the dollars in R&D and marketing and sales strategies to fund that more aggressive marketing campaign championed by the company. Stock buybacks are rarely undertaken nowadays as an investment for the future.

I don’t know whether GoPro will regroup and survive long-term or eat itself alive through executive mischief that is operating in an economic environment undergirded by unpredictable monetary interventions and political hornswoggling. We know the financial press will rarely step back from conventional wisdom and dissect the macro environment and all of its unsustainable tenets as the government manipulates monetary policy and the financial markets to prop up a short season of so-called prosperity.

In early 2016 the economy is in a state of steady retail contraction. Retailers have been growing their immense brick-and-mortar footprints and carelessly managing company assets and cash flow while the Federal Reserve has been injecting multiple interventions into the economy post-2008 to avert the necessary cleansing of Wall Street fraud and Main Street recklessness. It is worthy to note that corporate debt has almost doubled since the 2008 meltdown and stock buybacks are propping up the equity market. Corporate executives are all drinking the Kool-Aid from the Federal Reserve’s punch bowl.

And still, there are conventional-thinking, financial sector-employed halfwits out there who are going all bullish on GoPro and cheerleading for yet another stock buyback. Give them a spot at the table with the punch bowl, will ya?

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