It's been a rough 2017 for action camera leader GoPro (GPRO -1.82%). To his credit, GoPro founder and CEO Nicholas Woodman isn't sitting idly by as his Karma drones fall from the sky after sudden losses of power or sales continue spiraling downward. Woodman's cost-cutting initiatives implemented just a quarter ago are already paying dividends, and Karma's back in the clouds and seemingly selling well.
As for Alphabet (GOOG -1.14%) (GOOGL -0.98%), what can you say? The search behemoth continues to grow at a ridiculously phenomenal rate considering its size. And with plans to energize its wildly popular YouTube asset with upcoming original shows, not to mention its "other bets" unit, Alphabet is sitting on numerous growth opportunities over and above its world-beating search advertising revenue. In this case, the question of which is the better buy, GoPro or Google, is a slam-dunk.
HERO5 action camera. Image source: GoPro.
The case for GoPro
One of the immediate objectives of GoPro is to cut overhead to help offset lower than expected sales, and it's working. Last quarter GoPro shaved nearly $25 million in operating expenses, though that effort was undermined somewhat by a $26 million plus increase in cost of revenue.
On a more positive note, GoPro's $218.6 million in revenue in the first quarter was good for a 19% jump year over year, and losses decreased to $0.44 a share excluding one-time items compared to a loss of $0.63 a share last year.
The resurgence of the Karma drone, particularly with GoPro's wildly popular Hero5 camera onboard, was the number two best-selling drone priced over $1,000 in the U.S. last quarter, and sales in Japan more than doubled. On the not so positive side, GoPro's balance sheet is taking a hit as it reinvents itself.
A year ago GoPro had approximately $218 million in cash and equivalents, but this past quarter readily available cash dropped to $74.9 million, and that's after issuing $175 million of convertible notes. That said, Woodman is confident GoPro can meet its objective of "returning to full-year non-GAAP profitability in 2017." So far, so good.
Google's self-driving car. Image source: Alphabet.
The case for Google
Fans of Alphabet, formerly known as Google, may recall it wasn't even a year ago that pundits were bemoaning its continually declining cost-per-click results. The drops in per-click revenue were viewed by some as a precursor to an inevitable slowing in top-line growth. As Alphabet demonstrated again last quarter, bearish investors needn't worry.
Yes, cost-per-clicks dropped again last quarter, this time by 19% year over year. But sheer volume more than made up for the one-time "concern." Alphabet generated an astounding $22.75 billion in revenue for the quarter, up 22% compared to a year ago.
What makes Alphabet's meteoric growth so impressive is that with a market capitalization of nearly $660 billion it's one of the largest companies on the planet, yet it's still growing like a Street favorite tech upstart. Thanks in part to strict expense management and improved operating margins -- which increased to 27% last quarter versus 26% a year ago -- earnings-per-share (EPS) soared 28% to $7.73.
Such stellar performance nearly across the board makes it easier to swallow Alphabet's on-going losses from its Other Bets division. Sales did increase 48% to $244 million, but operating losses for the division focused on cutting-edge technologies including self-driving cars and internet balloons jumped 10% to $855 million.
And the better buy is...
Despite GoPro's rough 2017, Woodman has the action camera leader on the right path. It will likely be a year or more until GoPro is truly "back," but don't be surprised to see it, and its stock, return to investor's good graces before long.
That said, there's simply no stopping Alphabet. As the world becomes increasingly more connected even more people will look for answers by "Googling it." For a company of its size and scope to grow as it does is astounding. For that reason, Google is the hands-down better buy.
