With the tech-heavy Nasdaq 100 index trading in a bear market this year, steep falls in the value of individual stocks are a common occurrence.
But for action-camera innovator GoPro (GPRO -1.93%), its 93% decline in stock price began after hitting its all-time high of $93.85 back in 2014. Since then, the company has grappled with a series of internal challenges, and it has struggled to evolve beyond its one-dimensional hardware business.
But GoPro has become the ultimate turnaround story. It has recently found new revenue streams and the company is profitable again. As a result, its stock is winning the endorsement of Wall Street and there could be plenty of upside ahead for investors who join the action now.
GoPro is shifting its sales model
GoPro has always been the leader in the action-camera industry, making its devices more versatile and of a higher quality than its competitors, all at an affordable price. In fact, its Hero 10 Black camera is capable of shooting video in 5.3K HD for a price of just $499, which is far cheaper than the closest camera with the same capability at $3,500.
GoPro has always relied on large retail stores to sell its products, which is a perfectly rational strategy, but it deprives the company of value in a couple of ways. First, wholesaling to the retailers is convenient but it always leaves some profit on the table. Second, it means GoPro doesn't get to interact with its customers directly, which makes it harder to control communications about new products.
To seize some of that control, the company now also sells its products directly to consumers via its GoPro.com website. The site makes up about 41% of total sales (and climbing), and GoPro gets to keep all of the proceeds from those units rather than paying a slice to the retailers. It has contributed to a companywide increase in its gross profit margin, which came in at 41.8% in the first quarter of 2022, and it has helped to swing its bottom line back into positive territory over the last few years.
Its new software subscription business is booming
Perhaps the most impactful change GoPro has made is the addition of its new subscription-based revenue streams. Its Quik application is designed to replace the native camera on most smartphones by offering more advanced features for just $9.99 per year. And this year, the company will release a new desktop-based video-editing app under a separate subscription.
But the company's GoPro.com subscription is its most lucrative so far. For $49.99 per year, loyal GoPro customers can access exclusive discounts, unlimited cloud storage, and the ability to livestream directly from their device. Approximately 1.74 million users had signed up as of Q1 2022, which was an 85% increase compared to the same period last year. This could generate over $85 million in revenue over the next 12 months.
The best part about these revenue streams is that they offer very high gross profit margins of up to 80%. As they become a larger part of GoPro's revenue base, they have the potential to add a lot of value to the company's bottom line.
Wall Street is on board with GoPro stock
Analysts expect GoPro will deliver $1.24 billion in revenue for the 2022 full year, along with $0.91 in earnings per share. Both would be a modest increase compared to 2021, and considering the difficult economic environment, it would be a great result.
Given GoPro stock currently sits at just under $6 per share, its forward price-to-earnings multiple is 6.5. That's a 70% discount to the forward multiple of the Nasdaq 100 index, which is presently 21.8. It implies GoPro stock would have to more than triple just to trade in line with the broader market.
Of the nine Wall Street analysts that cover GoPro stock, only one recommends selling, with the majority rating it a buy. But one rating in particular stands out: Wall Street investment bank JPMorgan Chase is betting GoPro stock could soar by 148% to $15.
With the company's new revenue streams and a more profitable sales mix, it likely won't be long before the rest of the market realizes its potential, too.