The Nasdaq is About to Get Extreme, But Not in The Way You Think

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) was down 108 points in early afternoon trading, continuing the index's retreat from repeated all-time highs reached in recent sessions. The tech-heavy Nasdaq  (NASDAQINDEX: ^IXIC  ) was also down 24 points.

It was a relatively slow news day on the markets, without any major new data releases, earnings reports, or megamerger announcements.

But that didn't stop GoPro, the maker of small, wide-angle video cameras, from bringing a dose of its action-sports style to Wall Street late Monday. The company announced plans for a $100 million IPO on the Nasdaq, filing its S-1 form with the SEC

What is GoPro?
GoPro manufactures small, individual video cameras fitted with a wide-angle lens and accompanied by a waterproof casing. The combination gives individuals, athletes, adventurers, and explorers the opportunity to capture amazing footage from some pretty extreme locations.

Yes, you can attach your GoPro to a drone. Source: Don McCullough.

Users can attach the GoPro camera to scuba gear, motorcycle helmets, skydiving goggles, and a near-infinite host of other items. You can even strap your GoPro to a drone and take aerial footage wherever you are.

If this is your first time hearing about this camera, it's worth your time to peruse some of the top GoPro videos on YouTube.

The product is pretty cool, but how good of an investment could this be?
GoPro reported $986 million in revenue in 2013 that yielded $61 million in profit. Both figures nearly doubled the company's 2012 revenue of $526 million and $31 million profit. 

That growth may be fleeting, however, as this year's first-quarter results saw revenue decline 8% year over year. The company attributed the decline to a timing anomaly that caused a spike in the delivery of its Hero3 model last year. 

The company said it intends to raise $100 million in the initial public offering, but that number is likely just a placeholder. Filings state that the funds will be used for general corporate purposes, as well as to pay down an existing term loan.

At the end of the day, GoPro's financials look strong. The company has achieved a remarkable level of success selling a niche camera to the mass market. But one big question remains: where will its future growth come from?

Finding growth
With nearly $1 billion in revenue just last year, the market may soon reach its saturation point for such a niche product.

Most people already have a perfectly good video recorder on their smartphone, so why should investors expect the GoPro to find its way into even more homes? With a price point of just a few hundred dollars, $1 billion in sales in a year is a truly remarkable number of cameras already in use around the world. 

Source: Gordon Tarpley

Should we, or the company, really expect that many more individuals to buy the camera, along with a handful of accessories, and then strap it on to document Christmas morning or the family ski trip?

That's a hard sell.

Based on the company's regulatory filing, management agrees. In fact, it sees the future of GoPro as less of a camera manufacturer and more as "an exciting new media company."

Management stated in the S-1: "As of December 31, 2013, we had not derived revenue from the distribution of, or social engagement with, our content on the GoPro Network. ... However, we plan to pursue new revenue opportunities from the distribution of engaging GoPro content in the near term."

That means expanding the company's already huge list of sponsored athletes. It means consistently creating engaging content featuring those athletes and others who can appeal to the masses. And it means finding partners who will pay to have access to GoPro-created content.

Who knows what the future holds, and it's worth noting that GoPro has outperformed all of its critics since shipping the company's first camera back in 2004. That said, the risk and reward equation doesn't add up for me, at least not yet. 

The product is without question very cool, and it has found a nice corner of the market where it has done quite well. If this were five or eight years ago, the growth potential would be obvious. But today, the plan for growth is not obvious. It's down right murky. 

I'm a big fan of the GoPro the camera, I'm just not convinced on GoPro the stock. But in either case, the story will be fun to watch.

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