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What Goes Around, Comes Around: GoPro Inc Unveils the Karma Drone

BY Alan Perlman
16 December 2015

Source: Bidness Etc
By: Larry Darrell


GoPro Inc. (NASDAQ:GPRO) is set to launch its first-ever drone-based camera device, which we now know will be called “Karma.” The device was rumored to be in production since around 2014, and will mark the company’s entry into the fast-growing consumer drone market. However, the company—whose stock has tumbled recently—is in for some intense competition and perhaps some regulatory controls when the product is eventually released.

Very little information is available about Karma at this point, but as per the recent official blog post and the 1440p test footage released back in October, we can assume it’s a quadcopter design and the actual product may include 4K recording by now. GoPro’s entry into the high-growth drone market is no surprise when we consider the poor year it has experienced with its conventional products.

The action-camera pioneer’s stock has plunged more than 75% from the highs experienced in early 2015. The downward slant is attributed to lackluster revenues generated from its new Hero4 Session camera introduced in July. The company was unable to deliver its forecasted results, weakening investor faith in the process. Desperation to enhance Hero4 sales has forced the company to offer massive discounts; at $199, the Hero4 is now available at half the original price.

The drone industry is therefore a lucrative opportunity for the troubled company. This market currently experiences a massive boom, as it has registered a year-over-year (YoY) growth of 100% for past few years. A research from Goldman Sachs expects the commercial drone market to rise from current $1.5 billion sales in 2015 to almost $5 billion in 2017.

Growth is primarily consumer-driven, as more and more people are willing to experience next-level photography. Plus this technology facilitates many businesses for better operations, including news media and also scientific research documentary makers. GoPro is the first mainstream manufacturer to introduce drone devices, and its strong brand recognition can certainly help derive higher sales. It also possesses an efficient distribution network and is known for high quality after-sales service.

However, GoPro faces high competition from the Chinese manufacturer DJI, which commands a whopping 75% share of the global drone market. DJI sells its Phantom drone models at $699-799 with maximum manufacture cost at $250, giving it a product margin of around 70%. GoPro would need to establish similar margins and price point if it aims to make a competitive stand. Most drone buyers are actually novices when it comes to piloting one, so the camera maker could improve margins by offering spare parts as well.

Drone regulations in China are believed to be more relaxed compared to the strict ones in the US, and this allows DJI to post higher local and international sales. The ban on commercial drone usage in the US is currently under review, but it has forced many companies to produce and test the device elsewhere. There is also a limit on the number of countries American drone-manufacturers can export the device to, which is an impedance against broader revenue streams.

Analysts expect GoPro to post $1.7 billion in annual revenues for 2015, and a drone launch could certainly help enhance this figure next year to win back the lost investor confidence in its stock. With improved margins, better pricing, and eased regulations, it can capture a substantial fraction of the consumer and commercial drone market, which is expected to be worth $5 billion in the next two years.

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