Are GoPro's Content Plans Enough to Support Its Valuation?

GoPro recently discussed its media monetization strategy. But is it too little, too late?

Aug 20, 2014 at 9:08AM


The GoPro Network is of key interest to investors. Source: GoPro's S-1.

GoPro's (NASDAQ:GPRO) short time as a publicly-traded company has provided more twists and turns than many of its users' videos. The newest twist comes courtesy of CFO Jack Lazar's interview with JPMorgan in which he gives a broad outline of the company's plans to address a key investor concern: how to monetize content.

The interview, given to the analyst side of the company that underwrote GoPro's IPO, offered specifics on monetization plans, including licensing of company content. In response, the stock rose nearly 4%. However, the video-camera company was less committal about ad-based revenue from its YouTube channel and possible monetization of a video-editing services product. So although there was more specificity here, it isn't anything investors haven't heard before.

A media company that sells cameras on the side?
GoPro's media business is of intense interest to investors. The reason can be found in its S-1 initial public offering document and subsequent interviews in which CEO Nicholas Woodman labeled GoPro as a media company, which led to GoPro gaining higher valuations as a result. However, the company's revenue comes from sales of consumer electronics (read: cameras).

Compared to other consumer-based electronic companies GoPro is expensive on a forward price-to-earnings basis, trading at roughly 50 times. For comparison, Apple and Nikon trade at 15 times and 12.6 times, respectively. For a media comparison, GoPro trades close to new-media powerhouse Facebook, which trades at a forward multiple of 45 times.

Could GoPro grow into those lofty valuations? Absolutely. But last quarter the company only beat analyst earnings expectations by a penny in reporting an ex-one-time items earnings per share of $0.08. The stock responded by dropping nearly 15% by the end of the next trading session.

Media commentary
It isn't as if the company is not improving in its media and content ambitions: In the last reported quarter, GoPro noted that its number of videos published on YouTube was up over 160% year over year, views were up 200%, and video minutes watched up 270%. You know who loves these numbers? Investors in YouTube owner Google.

To be fair, every media company has to start with a deep well of content before looking to monetize it. And growing minutes viewed by an astounding 270% is a great start, but that's not monetization.

And that's why this interview was so important. Per the company's S-1, "[a]s of December 31, 2013, we had not derived revenue from the distribution of, or social engagement with, our content on the GoPro Network." For a company that plays up its social-media ambitions, for now it remains a limited-line consumer electronics company. And while Mr. Lazar didn't fully cover ad-based revenue, licensing of content is a start.

A sympathetic ear, perhaps?
Lost in this conversation is the fact that the interview was conducted by JPMorgan, which led the official GoPro underwriting and should be responsible for follow-up offerings and other investment-related services. JPMorgan followed a successful shepherding of GoPro's IPO with its analyst side rating shares of GoPro overweight with a target price of $51.

Does JPMorgan's investment banking unit want GoPro to succeed? Sure. When JPMorgan works with companies considering going public, the company wants to be able to point to having led a successful IPO. That's why it was interesting to hear the interview was conducted by JPMorgan -- a possible sympathetic ear -- and directly addressed GoPro's media monetization plans, a common knock against GoPro as an investment.

Final thoughts
Personally, I'm glad to hear more specificity from Lazar. However, GoPro is still too richly valued. By talking up its media ambitions before having a specific monetization plan, GoPro appears to have benefited from a higher than normal valuation that will be hard to maintain going forward. Plans are great, but investors are looking for media-based revenue -- GoPro shouldn't keep them waiting.

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Jun 12, 2015 at 5:01PM

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