Can GoPro Rise Again?

Maybe it’s fitting that a company built on seat-of-your-pants thrills would experience a two-year stretch of dizzying highs and lows.

GoPro didn’t invent the action camera, but it quickly became synonymous with the category, dominating sales as everyone from weekend warriors, action sports stars and Hollywood DPs scooped up the diminutive digicam.

After riding high on sales of its Hero action camera, GoPro hit a brutal stretch of financial losses in late 2015 and 2016, leading to a massive restructuring that saw the company shed 15 percent of its workforce. Earnings fell from $1.6 billion in 2015 to $1.18 billion in 2016. In all, the company lost $373 million in 2016—a performance partially attributed to its restructuring and the disastrous rollout of its Karma drone, which had to be recalled shortly after launch due to the fact that some Karmas had a habit of falling out of the sky.

Now, however, GoPro appears to be on the upswing. It reported a third quarter profit of $15 million, compared to a $104 million loss in the same quarter last year. Reduced operating expenses have no doubt helped GoPro’s balance sheet, but they’ve also taken some significant steps to improve their product portfolio.

The most significant step was bringing chip development in house. GoPro dumped its former supplier, Ambarella, in favor of creating a processing chip of its own design (manufactured by Socionext). Tuned and optimized for the Hero line, GoPro’s GP1 chip can deliver better image quality, low-light performance, dynamic range and noise reduction than the off-the-shelf solutions offered by Ambarella. It also enables HEVC compression, improved video stabilization and digital zoom functions. The GP1 made its debut in GoPro’s new Hero 6 camera.

Software is another big tentpole in GoPro’s recovery efforts. Following the purchase of the software developers Quick and Splice, GoPro has been steadily expanding the capabilities of its mobile app to make transferring and editing GoPro footage easier.

GoPro is also betting big on virtual reality. Last year, they teamed with Google to offer a high-end virtual reality camera rig. Comprised of multiple GoPros, it can upload footage to Google’s cloud platform for stitching and rendering. They’ve since broadened their VR lineup to include a forthcoming consumer VR camera, the Fusion.

Even GoPro’s turbulent entry into the drone market appears to have stabilized. The Karma was relaunched earlier this year without further issues, and new firmware announced in September brings some much needed features to the unit to help it compete with market leader DJI.

While it’s too soon to say that GoPro has fully turned a corner, it does appear to have hit the brakes on what had been a precipitous financial slide. But the same competitive pressures that put the company on the back foot in 2016 remain. Smartphone makers are steadily improving the water resistance of their models. While they’re unlikely to ever offer the durability of a GoPro, even incremental improvements in smartphone durability will chip away at GoPro’s raison d’etre.

Meanwhile, a slew of knock-off competitors continue to push down price points in the action camera market—even if GoPro has managed to improve the average selling price of its product by 22 percent.

GoPro could shore up a strong market position in the nascent 360-degree camera market with the Fusion, but that is likely to be a niche market for the foreseeable future. Adjacent product categories, like drones and handheld stabilizers, are dominated by DJI.

One plausible new avenue for the company would be to target professional filmmakers. GoPros have long been prized by cinematographers for their low cost and durability—tthey’re treated as crash cameras in scenes where directors are loathe to risk cinema cameras costing thousands of dollars. GoPro’s Odyssey VR camera rig is a step toward courting pros, but VR is a small and very specialized niche.

A “pro” GoPro camera with the compact size and durability of the existing Hero but with a larger sensor and more cinema-friendly features could give a further boost to the company’s margins. They will need to act fast, though. DJI has created a potent compact camera that rides on its Inspire 2 drone—and it will likely bring a similar model down to Earth as a standalone product for its Osmo handheld stabilizer.