2 Significant Threats to GoPro Inc.'s Long-Term Success

GoPro stock, GoPro IPO

GoPro's Hero3+ Cameras, Credit: GoPro,

It's official: As of this morning, GoPro Inc (NASDAQ: GPRO  ) is a publicly traded company, and the market couldn't be much more excited. Shares of the rugged camera maker are currently up around 31% from its IPO price of $24 per share, which already represented the high end of GoPro's expected range.

Part of that price has to do with the fact GoPro reclassified itself as a "media company" prior to the IPO, thereby allowing it to command a higher valuation -- something which understandably didn't sit well with fellow Fool Jamal Carnette today.

1. GoPro isn't really a media company right now
And that brings me to the first threat to GoPro's long-term success: Namely, that it still derives substantially all its revenue from the sale of hardware capture devices.

To its credit, the company does have GoPro Studio and the GoPro App, both of which help facilitate distribution of the resulting photos and videos to popular sites like YouTube, Facebook, Instagram, and Vimeo. And yes, that does drive difficult-to-measure brand awareness for GoPro. But at this point, GoPro simply hasn't figured out how to directly monetize that media.

That's not to say it doesn't intend to do so. According to GoPro's S-1 filing, the company states plans "to pursue new revenue opportunities from the distribution of engaging GoPro content in the near term." However, the only examples it provides are advertising with YouTube and Virgin America, as well as a new agreement to develop and launch a GoPro Channel on Xbox Live. And while GoPro does expect those agreements to start generating revenue sometime in the second quarter, it admits that revenue likely won't be material in 2014.

Still, while they may not pay the bills, you've got to admit those videos sure are amazing:

2. Where's the growth/moat?
Of course, lacking a way to monetize its media won't be a problem if GoPro's hardware business continues rolling full steam ahead, right?

GoPro has the brand presence as the go-to player in its space, and last year commanded an incredible 45% share in the U.S. camcorder market. And that resulted in staggering growth over the past few years, as GoPro went from shipping 1,145 million individual camera units in 2011 to 3,849 million in 2013. Annual revenue more than quadrupled over the same period, rising from $234.2 million to $985.7 million.  

But what happens if a bigger player like Apple or Samsung steps in with an equally rugged, less expensive device of their own? GoPro might still have its name, but it's hard to imagine it being capable of competing on a global scale with these well-funded tech behemoths.

In fact, even in the absence of such competition, GoPro might have already hit a growth plateau. If you look at the S1 section on the discussion of GoPro's financial condition and results of operations, you'll see management succinctly states "We do not expect to sustain or increase our revenue growth rates."

Sure enough, GoPro only shipped 852 thousand units in Q1 of this year, down from 954 thousand units in the first quarter of 2013. As a result, revenue decreased over the same period, from $255.1 million in Q1 of 2013, to $235.7 million in its most recent quarter. Meanwhile, adjusted first-quarter EBITDA fell over the same period from $40.9 million last year, to roughly $28.6 million in Q1 of 2014.

Foolish takeaway
GoPro is still an intriguing business dominating its niche, so I'll be sure to touch base along the way to see how its plans are progressing. For now, however, and as a long-term investor, these two risks alone are more than enough to keep me on the sidelines.

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Read/Post Comments (5) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 26, 2014, at 2:55 PM, BillFromNY wrote:

    Don't you know that Garmin

    http://www.cnet.com/news/garmin-gets-up-in-gopros-grill-with...

    and worse Sony

    http://gizmodo.com/sony-action-cam-as100v-review-gopro-final...

    are now direct competitors of GoPro?

    AMBA owners will be happy to know that the Sony Action Cam also uses Ambarella's chip set.

  • Report this Comment On June 26, 2014, at 6:54 PM, BillFromNY wrote:

    You know that GoPro already has a major new competitor in Sony and its Action Cam. There is a detailed comparison at gizmodo.com as well as quite a few other magazines. Garmin is also a competitor.

    GoPro holds its own in the comparison tests, but in some areas Sony is stronger and then there is the Sony name.

    Ambarella investors, Sony uses the same chip set as GoPro so this may be a positive development.

  • Report this Comment On June 27, 2014, at 3:31 PM, davidwhalen wrote:

    Of course this years sales are down since they have not released a new camera this year. If they release 2-3 models throughout the year they will grow big time and revenue will continue. There is a huge demand for a pro version of the GoPro that shoots in all frame rates without the fisheye. And there is another market they can enter, the 4k DSLR market and compete with Panasonic GH4 and Sony 4k among others. If they are all about small and rugged and cheap, they will continue to be successful. GoPro name is enormous and they will not fail if someone else comes on board in competition. There are already several like the Panasonic A100 but GoPro had had the ball for so long people won't give up. Are you not watching the World Cup, every 10th person in the stadiums seems to have a GoPro on a stick or on their hat.

    I posted this on CAPS

    I have used the GoPro for several indie films I have made. Every single indie filmmaker has one as his or her stunt cam. Indie filmmaking is an enormous industry. Indie's don't make money, but the industry around it does as it continues to explode. There is a huge demand for a Pro version of the GoPro that shoots without the big fisheye and with a larger sensor and every frame rate possible. I think if they focus on making 2-3 models, all rugged and waterproof, ranging from $300-$500, and perhaps expand to a larger sensor proper DSLR shooting in 4k to compete with the Panasonic GH4 (sell for $1600) they will have huge growth. They should focus on ruggedizing them for the indie outdoor filmmaker. This is where they distinguish themsleves from cell phones and smaller digi cameras. They could also come up with a drone built around the GoPro to compete with DJI out of China and others. There is so much they could do with tons of money raised in IPO. Their name is enormous. The editing software idea is probably a flop as Adobe and Final Cut own that, but their name in promoting stunt events is enormous and they can continue to monetize on stunts like the drop from the balloon last year and the high wire over the Grand Canyon. I bought at $30 and will hold for at least a couple years. Even last year when the Hero 3 came out with tons of software glitches, they continued to sell them like crazy because there was no alternative.

  • Report this Comment On June 28, 2014, at 9:05 AM, FooLawson wrote:

    People think that GoPro doesn't have brand recognition though they have been around for over ten years. Ten years isn't a lot but I have seen these cameras hit cement, get eaten by dogs, and go way further than 50 feet under water. The thing with GoPro's competitors like Sony is they can make their camera very similar to the Hero, yet it can never do as much as a sports action camera. When GoPro stops the innovation in the Hero's tools (which are also one of a kind) and puts all that cash to the R&D of the cameras Sony and the others will not be able to keep up since cameras aren't on the top of their product list

  • Report this Comment On July 02, 2014, at 4:16 PM, stevencravis wrote:

    How about making new GoPro equipped DRONES?

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