GoPro Hero3+ Black edition. Source: GoPro. 

Filing its paperwork with the SEC yesterday for its initial public offering, GoPro generated the kind of buzz usually reserved for the extreme sports its cameras are favored for. Though there are some good reasons to be excited about the IPO, this may not be a picture-perfect investment when it hits the market.

In just a few years time, GoPro has reached almost $1 billion in revenue on sales of tens of millions of its cameras, but the growth rate is slowing and net income also tumbled in the first quarter, falling 51% year over year. More worrisome is the fact the camera maker is wholly dependent upon HD camera system-on-chip manufacturer Ambarella (NASDAQ:AMBA) to power up its small, wearable cameras. It has no fallback position such that should the supply line be broken, GoPro would be crippled.

Moreover, substantially all of GoPro's revenues come from its cameras, and though it owns a growing part of the market, there are bigger, well-heeled rivals with their own cameras that are looking to steal share, including Sony and Panasonic. With Google and Samsung both pushing wearable camera technology -- the former with Glass, the latter with Galaxy Gear -- it's a market that is only just finding its footing and can only expand from here. That may mean a bigger market for GoPro's cameras too, but competition is competition, and it may no longer dominate as it does now.

There is one area where it has the potential to differentiate itself, and that's with its GoPro Network, the programming hosted on channels like YouTube and Facebook where users can use its proprietary GoPro Studio software to easily create, manipulate, and upload content from their cameras. To date, GoPro hasn't realized any revenues from this source, but that's soon to change, and that means it's uniquely positioned to become a media company whose content is captured exclusively using its own hardware.

On Facebook, GoPro has over 7.2 million "likes," more than 2 million followers on Instagram, and some 450 million video views on Google's YouTube. Indeed, in 2013 alone, users had uploaded so much content to YouTube with the word "GoPro" in the title that it would take you some 2.8 years to watch it all. At the end of the first quarter of 2014, there have been more than 4.3 million downloads of GoPro Studio, while during the quarter, GoPro's customers exported more than 20,000 videos per day using the software suite.

Earlier this year, GoPro entered into an agreement with Microsoft (NASDAQ:MSFT) to develop the GoPro Channel on Xbox Live, providing it with access to advertising revenue, fees from third-party sponsorship of the channel, and the ability to sell its cameras directly to consumers watching GoPro programming. The camera maker anticipates it will begin earning revenue from these external sources starting this quarter, though it won't be material to its operations yet. 

It needs to develop those alternative streams soon. Smartphones, for example, could erode the advantages the GoPro camera has, and though the action cam maker has tried to thwart their advance with LCD backs, extended batteries, and mounts for tripods and more, formidable rivals don't appreciate GoPro's attempts to make what was once a secondary camera a primary one.

Still, citing statistics from the market researchers at IDC, GoPro says global shipments of digital cameras fell from 142.7 million units in 2011 to 76.2 million units last year, a 47% drop, while global shipments of digital camcorders fell 33% from 21.1 million units in 2011 to 14.1 million units in 2013.

There's a lot to like about GoPro, but the market niche for the action cam is really just heating up, and while marketing has defined the camera maker thus far, investors might do better simply buying one of its cameras and not its stock.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Ambarella and Google (A and C shares). The Motley Fool owns shares of Ambarella, Google (A and C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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