Why Would Apple Action Cam Patent Announcement Cause GoPro Stock To Plummet?

Earlier this week, it was revealed that Apple was granted a patent for a wearable, waterproof action-camera. The announcement caused the shares of market leader, GoPro, to plummet 12.7 percent. But why?
gopro is riding a bubble - is it about to burst?
Clearly Wall Street was spooked by the report, but this was just a patent award, not an actual product. In reality, Apple files dozens of patents every year, but very few actually see the light as viable products. This particular application was made to the US Patent and Trademark Office in 2012 by Kodak, not Apple. However, Apple acquired much of Kodak’s intellectual property, including this patent, when the famed camera brand was circling the drain and they needed an infusion of cash. Indeed, several of the diagrams filed as part of the patent include Kodak logos, not Apple.

GoPro was trading at 98.47 on October 7, 2014, as of 12:00pm EST today it’s at 50.48.

GoPro owns the action camera market with $1 Billion in sales during 2013. The new GoPro Hero 4 has been a huge hit, especially this holiday season. They are encountering increasing competition, especially from Sony, who introduced a 4K version of their action model at CES. However, Sony’s product announcement didn’t cause alarm on Wall Street, a patent filing did.

So what’s the deal? Well, two things do tell the story. First, the obvious, in the patent application, the filing actually criticizes the GoPro on several fronts. First the form factor, which they claim causes “excessive wind resistance” and makes it more susceptible to “vibration.” Second, is that fact that it can only shoot video from the front. Now let’s examine the fault-finding. The GoPro’s audio problems have been well documented ever since the first Hero was brought to market, so this is nothing new. In reality, GoPro has made significant strides in addressing this deficit on the Hero4, having DSP Concepts tweak their audio algorithm and making some modifications to the design. Vibration? The GoPro doesn’t offer any image stabilization, like the new Sony, but when you’re bombing down an avalanche shoot, there’s not a lot you can do about excessive vibration.

GoPro Looks Like a Kodak Instamatic

Maybe it has to do with the fact that GoPro only has essentially one product. Sure, there’s a multitude of accessories, but they only have a single product. And as good as that product is, for what it is, it’s still not that great. Battery life is abysmal. In fact, its shockingly bad. The form factor looks more like a Kodak Instamatic, than a cutting-edge, digital camera. The firmware is in a perpetual “beta” state. The camera’s operating temperature can get so excessively hot, that it can cause it to shut down — when you need it most. The iPhone app has tons of great features, but never actually works for a sustained amount of time due to shameful connectivity issues. Detractors can go on and on, but essentialy this camera, is the definition of a bubble product that is riding the precarious wave of brand culture. Once that evaporates, so does the value of the company.

Now, Sony can’t touch GoPro’s brand equity. The Japanese concern has absolutely no vibe. Wonder Bread has more brand enthusiasm. However, Apple does have incredible brand currency, culture and loyalty. And they make “insanely great” products. Thus, the mere specter of Apple entering the action-cam market, not only showcases the Hero’s many deficits, it immediately pries open the cracks in GoPro’s fragile market position.

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