Why GoPro, Inc. May Be Worthy of a Spot in Your Portfolio

Shockproof, waterproof, camera maker GoPro (NASDAQ: GPRO  ) has made a big splash in the market. GoPro cameras can be mounted just about anywhere and their popularity and ubiquity has positioned the company to dominate the field. However, with some raising concerns that GoPro shares are overpriced, does this stock deserve a spot in your portfolio?

GoPro starts to shine
Just a decade ago, video played a very small role on the Internet -- that is until YouTube launched. Today, video is more important than ever. Recent M&A activity has seen Google shell out $555 million to buy Dropcam, a Wi-Fi camera that streams video, and video ads have been rolled out by Facebook.

The ride begins
GoPro's IPO was set at $24 and during its first day of trading, shares quickly rose as high as $31. In the following days, GoPro peaked at $48.80, and while it eventually declined, shares have been trading well above its IPO price. Tech IPOs tend to be volatile and pullbacks are common, but if you bought GoPro near its high, you may not be thrilled with its recent performance. That said, this is, after all, a tech IPO and it's probably wise to expect lots of peaks and valleys as investors settle on what the stock is worth.

When the ride is over
Perhaps the best thing GoPro has going for it is its loyal customers. However, with a valuation of $4.8 billion -- a value 83 times last year's earnings -- GoPro has a lot riding on its product. Maybe too much. There is not a lot of diversification in this company. It currently makes one thing, and while the product in question may be the best on the market, that may not always be the case. All companies must keep an eye on competitors and constantly be on the lookout for changes in their industry, but unless GoPro makes some acquisitions or branches out into other areas, it could be crushed if someone else comes along and does what it does better.

For example, in 2007, Nokia was in charge of more than 50% of the worldwide smartphone market. At the same time, Apple's market share was limited to only 5.2%. By 2011, Apple had overtaken the top spot and Nokia had slipped to third place, behind Samsung. Today, Apple and Samsung are locked in battle for the top spot and Nokia's share of the market is around 3%.

GoPro seems to be aware of these dangers though and appears to be addressing its lack of diversification. The company already has an agreement with Microsoft to launch a channel on Xbox Live, which will allow GoPro to generate revenue through advertising and sponsorship deals. It should also provide GoPro with an opportunity to sell its products direct to consumers who are viewing programming featuring GoPro cameras. GoPro has similar partnerships planned with Virgin America and Google's YouTube as well.  

Bottom line
In the grand scheme of things, at 12-years-old, GoPro is still a baby and there's no denying that GoPro has made a huge name for itself. Waterproof cameras are not new, but until GoPro came along, use of these cameras was limited. GoPro has found a strong position in the market and is currently dominating. While the case can be made that GoPro cameras won't have a broad enough appeal or that the company is in danger of being a proverbial one trick pony, it is simply too soon to know what new products this company can create. Cameras may only be the start, or the company may reinvent that industry yet again.

As with any company that's recently gone public, for the long-term investor, it's probably wise to sit on the sidelines and do some serious research. But GoPro seems worthy of some attention. Keeping an eye on this one could allow a perceptive investor the opportunity to get in at a great price just before the company makes an even bigger splash.

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  • Report this Comment On July 21, 2014, at 7:17 PM, BillFromNY wrote:

    GoPro fans seem to be completely ignoring competition now and in the future. If the great new market arises for these cameras, competition will intensify.

    Competition already exists with Sony, a rather well-known consumer name. It recently released its Action Cam AS 100V. In many comparisons between the two (http://gizmodo.com/sony-action-cam-as100v-review-gopro-final...

    You can search for about a dozen of these comparisons with Hero 3 Black vs. Sony Action Csm 100v).

    Sony Action Cam AS 100V

    GoPro Hero 3 Black

  • Report this Comment On July 21, 2014, at 8:24 PM, BillFromNY wrote:

    Oops, accidentally hit the post button. In many comparisons between the latest and most expensive GoPro and Sony Action Cam, very little difference can be found.

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

    This is one article if the link works. You can find many others on the Internet.

    Now GoPro will soon release its Hero 4 and hopefully jump ahead again. But if Sony keeps some of its edge in areas such as audio, battery life and cost, it is going to sell some cameras especially to those with interest in those areas.

    I'm invested in AMBA, who provides the video compression and image processing chip for GoPro. From my research AMBA provides Sony with nothing. (By the way, Sony provides GoPro with the image processor for the Hero.)

    So I'm completely in GoPro's corner, but GoPro holders seem to have an immense confidence in the name as well as the quality of the Hero. I hope that they are right.

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