Wall Street is littered with tales of corporate successes, failures, and blockbuster comebacks. After teetering dangerously close to falling into the second category, action camera company GoPro (GPRO -0.86%) is working hard to execute an incredible turnaround.
GoPro stock listed publicly in 2014, and quickly printed an all-time high price of $93.85, but it now finds itself trading at just $5.71, a whopping 94% below that level. Investors have routinely shunned the company because of its one-dimensional business model, which was challenged for growth, but that's about to change.
GoPro is tapping brand new subscription-based revenue streams with high profit margins, and it's expanding its camera hardware line to reach a larger addressable market. This has turned the tide among Wall Street analysts, with many of them now in the bullish camp. Here's why.
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GoPro just upped the ante on hardware
For months, the internet has been abuzz with rumors surrounding GoPro's new Hero 11 camera. The company finally revealed the details on September 14, and did something nobody saw coming: It released not one, not two, but three variations of the flagship model.
There's the standard Hero 11 Black, which is the natural replacement for the prior Hero 10, but GoPro also unveiled a Hero 11 Mini, which packs all the punch of its bigger brother in a small, lightweight design. It doesn't feature a digital screen, but it can be controlled using any smartphone with the GoPro Quik app installed.
The third model is the Hero 11 Black Creator Edition, the most expensive of the three at $835. The customer gets not only the camera itself but also a hand grip, light mod, and a long-lasting battery capable of shooting four hours' worth of 4K High Definition (HD) video on a single charge.
Most importantly, GoPro elevated its game yet again on core video features. All three cameras are capable of shooting in 5.3K HD, capturing 1 billion colors, and users can film one shot and share it in the appropriate ratio whether they're uploading content to Alphabet's YouTube, ByteDance's TikTok, or Meta Platforms' Instagram.
Investors rightly disappointed by the lack of growth from GoPro's hardware segment might find solace in this new approach. It could attract more customers based not only on product function but also thanks to the three different price points.
GoPro's subscription revenue is a game changer
For the last two years, GoPro has been building a subscriber base that exceeded 1.9 million customers in the second quarter of 2022 -- a year-over-year jump of 65%. They're paying an annual fee of $49.99 to unlock exclusive product discounts, unlimited cloud storage, and the ability to livestream videos directly from their GoPro camera.
GoPro estimates that this new revenue stream will be worth $100 million per year from 2023, making up about 8% of the company's total projected $1.26 billion in revenue (according to Wall Street analysts). That figure might seem small, but subscriptions can have a gross margin as high as 80%, which means this revenue could have an enormous impact on GoPro's profitability as it becomes a larger piece of the business.
The company isn't stopping there. It's set to release new desktop-based video editing software next year, yet another opportunity to earn subscription revenue. It follows the success of the Quik smartphone app, which has amassed 276,000 subscribers paying a small recurring fee of $9.99 per year.
These high-margin revenue streams are already bearing some fruit. GoPro's blended gross profit margin came in at 38% in the second quarter, up from 30% in the second quarter of 2020 when subscriptions were just ramping up. Additionally, analysts expect the company to generate $0.76 in earnings per share for the 2022 full year, followed by growth of 22% to $0.93 per share in 2023.
Wall Street is on board with GoPro stock
Despite an overwhelming pessimistic sentiment toward GoPro stock over the last eight years, there are finally some bullish analysts on Wall Street. Some have trimmed their price targets recently amid the broader economic slowdown, which is hurting consumer spending, but they still remain well above where the stock trades today.
Over the next 12 to 18 months, investment bank Morgan Stanley thinks GoPro stock could rise 40% to $8. Analyst firm Wedbush Securities has rated it an outperform and is betting on a 75% gain to $10 per share. Oppenheimer is slightly more bullish with a target of $11, representing a potential upside of 92%.
But one Wall Street investment bank, JP Morgan Chase, thinks GoPro stock could soar 162% to $15.
While GoPro stock shed a significant amount of its value since hitting its all-time high, that might be a buying opportunity based on analysts' predictions. And if the company continues to successfully execute its turnaround strategy, its stock could trade even higher than all recent estimates in the long run.
