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GoPro Value Tumbles After Karma Drone Grounded

GoPro who have struggled to hold onto market share in Australia have seen their share value tumble overnight after the Company was forced to recall 2500 Karma drones, the move comes days after the Company had production issues with their new Hero5.

Shares tumbled as much as 10 percent after the company said it’s recalling about 2,500 weeks out from the biggest consumer electronics selling period.

In a “very small number of cases” GoPro drones bought since Oct. 23 lost power, the company said in a statement. No injuries or property damage have been reported and owners can return the units for a full refund, GoPro said.

Chief Executive Officer Nick Woodman had been betting on the new drone to spark growth. karma_5.0

But last week, the company lowered its forecast for full-year sales and missed estimates for revenue in the third quarter, suggesting the device, and the latest iteration of its cube-shaped camera, won’t be the consumer hits it was expecting. The recall may further depress sales.

Several analysts downgraded their recommendations on the stock and some lowered forecasts for fourth-quarter sales.

“This is not only a surprise to us, but another ding on management’s credibility,” wrote Erinn Murphy, an analyst at Piper Jaffray & Co., in a note. “Not only were we surprised by the modest level of initial units sold, but we believe it is a possibility that Karma will not be available for the key holiday season.”

The shares dropped 7.8 percent to $10.01 in New York. They had fallen 40 percent so far this year.

GoPro said it’s working with the U.S. Consumer Product Safety Commission and the Federal Aviation Administration on the recall and plans to resume selling Karma drones as soon as it resolves the issues.

The drone recall comes on top of production issues with the Hero5 camera, which executives mentioned on a recent earnings call.

“The two pillars of GoPro’s growth story are shaking,” Jitendra Waral, an analyst at Bloomberg Intelligence, said. “There were a lot of built-up expectations around the recovery of the company with drones, so this is not a good start.”

San Mateo, California-based GoPro is up against intense competition in the drone business from manufacturing giant SZ DJI Technology Co. and other upstarts flooding the market with cheaper models.

Shenzhen, China-based DJI’s newest drone, the Mavic, is another small foldable drone that’s in direct rivalry with the Karma. Piper Jaffray’s Murphy said the Mavic has demand and backlog estimated to be in the range of 200,000 to 500,000 units.

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