GoPro (GPRO +6.67%) is the global leader in action camera technology. It listed on the public markets in 2014 at $24.00 per share, promptly rocketed to $93.85, and then spent the next six years steadily declining before finding a bottom at $2.29 per share in 2020.
But the company has been on a mission to transform its business model by leveraging new sales channels and unlocking new revenue streams. Those moves have successfully driven a modest recovery in GoPro stock, and here's why there could be significant long-term rewards for investors who buy it now and hold.
Image source: Getty Images.
Going direct to consumer
GoPro is a hardware company at its core -- it's by far the most innovative action camera maker in the industry. Its latest HERO10 Black release can shoot video in 5.3K ultra-high-definition with state-of-the-art stabilization technology. And priced at $499, it's 85% cheaper than what the company says is the next-best product, which sells for $3,500.
The problem is it's very difficult to generate long-term growth from selling hardware alone when the company's fate is so reliant on one type of product. That's especially true when large retailers are GoPro's primary sales channel. It places a barrier between the consumer and the brand, which makes it hard to build relationships and upsell them on accessories. Not to mention, GoPro has to forfeit a chunk of the profit to the retailer.
But the company has created a more lucrative direct-to-consumer channel through its website, and it's growing quickly. In the first quarter of 2021, 33% of sales came from GoPro.com, but that jumped to 41% in the most recent period. This progress is already making an impact on GoPro's financials, sending its gross profit margin to 41.8% in the quarter, up from 38.6% a year ago.
The result was a notable swing into profitability as the company generated $5.7 million in net income after losing over $10 million in the year-ago quarter. But things might get even better going forward.
New high-margin revenue streams
GoPro has a unique opportunity in software development. Content editing tools offer great synergies for a camera company that leads the pack in terms of video quality, and GoPro is on the verge of releasing a new subscription-based desktop software application in 2023. It will build upon its existing GoPro Player and ReelSteady desktop apps to include a more comprehensive suite of editing tools.
It complements the company's Quik smartphone app, designed to replace the native camera app on iPhone and Android devices. Quik is targeted toward potential customers that don't own a GoPro camera in an attempt to expand the company's addressable market.
But GoPro's largest source of recurring revenue, for now, comes from the GoPro.com subscription, which offers customers exclusive product discounts, cloud storage for videos, and the ability to livestream from their GoPro device. It continued its stellar run of growth in the first quarter with subscriber numbers jumping 85% year over year to 1.74 million, sending subscription revenue soaring.
Perhaps an even more positive part of this growth story is the gross margin attached to GoPro's subscription revenue, which can be as high as 80%. Subscriptions accounted for less than 10% of total revenue in the latest quarter, but the growth rate suggests it's on the way to making a big impact on the company's financials overall.
When that happens, GoPro's blended gross profit margin could shoot well north of the current 41.8%.
Why GoPro is a buy now
GoPro has clearly made substantial progress in improving its business, and it's being recognized by some Wall Street firms, which have recently flipped to a bullish view on the company after being bearish for years.
The average price target for GoPro stock on Wall Street is $11.80, representing potential upside of 85% from where it trades today. But one investment bank, JP Morgan Chase, is far more bullish, predicting the stock could soar well over 100% to $15 per share.
NASDAQ: GPRO
Key Data Points
Thanks to its newfound profitability, GoPro is heavily de-risked as an investment. The company made money in 2021 and is expected to generate $0.93 in earnings per share in 2022, with more growth predicted in 2023.
With the stock down 93% from its all-time high, now might be the time to get involved, given the transformative nature of GoPro's subscription business and new software on the horizon.
