GoPro is due to hit the public markets Wednesday in one of the most anticipated initial public offerings of the year. The company is expected to sell 17.8 million shares to investors and will be worth around $3 billion if the price holds true.
Like many young companies, GoPro is just scratching the surface of its potential. Devices are becoming more wearable and GoPro has built a brand that can take advantage of that. Let's look at why I see upside for GoPro's IPO.
More than just a Hero camera
The GoPro Hero line of cameras is GoPro's portfolio that provides a vast majority of the company's value, but it's now expanding to apps and software that make the experience more user friendly. The latest Hero 3 line offers a wireless connection that allows users to see what they're shooting instead of shooting blind like in the past. The next step is it to stream action sports directly through your GoPro camera using a wireless connection, and it shouldn't be far away.
In the future, I think we'll also see the product line expand to smaller wearable cameras that don't require the bulky mounts the Hero 3 does. The number of applications is almost endless from small drones to remote control cars to wearable glasses. Athletes have been mic'd up on the field for years so why not add cameras to the mix?
The technology behind GoPro's cameras is improving so quickly that I would be shocked if GoPro didn't set its sights on more markets. GoPro's key partner Ambarella (NASDAQ:AMBA), who makes video compression chips, is already guiding the way by moving into security applications, automobiles, and other wearables. If you're looking to get in on GoPro's growth but want a little diversification, Ambarella would be great to pair with GoPro because it is a key supplier to the company along with having other end markets.
The challenge with projecting product expansions is that you're putting faith in management. But that's where I think GoPro has a solid foundation.
An energetic and visionary CEO
When buying an IPO, the most important person you're investing in is the CEO. In GoPro's case, Nick Woodman is the quirky, energetic, adrenaline junkie who runs this emerging company. He was the one who had a vision to build a camera that could be used for action sports and it was his experimentation with the camera that created the functionality and accessories that make GoPro so easy to use today.
Woodman has the entrepreneurial spirit that has driven innovation in Silicon Valley for decades and with the growth in popularity of action sports and recording and editing video he has built a perfectly positioned company. We may not know what he has up his sleeve next, but given the way he's built GoPro into a profitable camera power he's not someone I would bet against.
A faster replacement cycle than you think
One of the common criticisms of GoPro is that you don't need to do business with the company once you buy a camera. This is true in theory, but the reality is that GoPro is constantly updating its technology and users will want to upgrade as it does. There are also changing form factors, which require constant accessory upgrades.
As GoPro brings Wi-Fi, streaming, and new form factors into its product line the replacement cycle will continue, just like it does with cell phones, computers, and tablets. We'd like to think that one device is enough but the improvements two or three generations down the line are often too much to pass up. The same will be true with GoPro if it can keeps its innovation engine going.
Why you should jump into this IPO
I think there's enough skepticism about GoPro's business to provide an incredible opportunity for investors. The company is still growing its installed base, technology for cameras and software is improving, and the demand for smaller, more wearable cameras is only going to increase. That puts the company in prime position to capitalize, and with a brand that defines action sports it's a name the market should love as well.
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Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends Ambarella. The Motley Fool owns shares of Ambarella. 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.