GoPro turns weak as Google launches AI based camera

On the basis of an upward revision of fiscal 2017 third-quarter outlook, on September 13th , there was a predicted rally in the stock of wearable action camera manufacturer GoPro Inc (NASDAQ: GPRO). There was a desire to purchase a call option from a binary broker to gain from the uptrend.

The stock, which was trading at about $10, hit a high of about $11.20 in a week, and traders ended up making a profit from the option trade. Now, the stock has declined once again to $10 levels. It is because the company’s top management is now being investigated by a consumer rights firm for alleged breach of its fiduciary responsibilities.

Furthermore, the newly introduced Google’s tiny camera named Clips, with artificial intelligence capabilities, is perceived as a possible competitor to GoPro’s action camera series. Thus, on the basis of the details provided below, we expect the stock to remain bearish in the short-term.

GoPro

Last Wednesday, Google announced that it would soon launch a smart video camera, which can automatically take photos without the need for human intervention. The smart camera, christened as Clips, would be soon available for about $249. Notably, GoPro’s tiny cameras Hero5 Session and Hero Session costs $300 and $150, respectively. Clips, which measures just 1.9 inches and weighs only 1.5 ounces, has a 12-megapixel image sensor, built-in Wi-Fi and Bluetooth, and a 16GB storage limit. The camera can transfer content directly to Android phones using the Wi-Fi Direct protocol.

Most importantly, Clips, which uses the machine learning algorithm, can turn on automatically when it comes across anything that may be of interest to the user. It is not pitted as a direct competitor to GoPro’s cameras. However, considering the competitive price and smart technology, it would make a customer to think twice before purchasing a GoPro camera. GoPro also faced a negative news on the legal front, last week.

Schubert Jonckheer & Kolbe LLP – a shareholder and consumer rights law firm – has launched an investigation into the alleged malpractices of certain officers and directors of GoPro. The investigation follows denial from the US District Court to dismiss a securities fraud class action claim against GoPro and certain of its executives. The class action suit alleges that between the periods September 19, 2016 and November 8, 2016, defendants misrepresented important aspects of GoPro’s business and indirectly inflated the stock price.

According to the suit, the defendants mislead investors by saying GoPro was on track to achieve its revenue guidance, when it was not the case. The class action suit also alleges that GoPro falsely claimed that its new drone was available at multiple retailers, when it was not. Furthermore, the aerial footage of GoPro’s drone was extraordinarily smooth, even with a design defect.

The investigation will verify when and how much certain of GoPro’s executives and directors were aware of these fraud practices. The introduction of smart camera Clips by Google and the US District Court’s denial of the dismissal plea against investigation is expected to keep the stock bearish in the short-term.

The price chart indicates the formation of a double top pattern. Furthermore, the MACD histogram reading has turned negative. Thus, we expect a continuation of the current decline. On the downside, the next major support is at 9.

To trade the probable decline, a put option can be bought when the stock trades near $10 in the NASDAQ. Before placing a bet, we would make sure that the option contract remains active for a week.