It takes resolve to buy a stock that has lost 94% of its value, especially in the case of GoPro (GPRO 0.52%). Its decline began way back in 2014, after it hit its all-time high of $93.85.
But there's a unique comeback story emerging.
GoPro is shaking up its sales channels for its market-leading action cameras, while also focusing on new, subscription-based revenue streams. The result so far has been consistent profitability, which is gradually reducing the risk of owning GoPro stock and paving the way for future upside.
The company's third-quarter financial results (released Nov. 3) were another step in the right direction, and here's why GoPro stock is a buy now for the long term.
GoPro is back in action
Since GoPro stock's public listing in 2014, there were times when many investors feared the company wouldn't survive. Its one-dimensional business model selling camera hardware and accessories was struggling for growth, and it had less money to invest in innovation as a result. The company needed to make seismic changes to turn its fortunes around, and that's definitely happening right now.
The company used to rely solely on big-box retail chains to sell its products, but it has transformed its GoPro.com website into a direct-to-consumer channel that now makes up about 32% of sales. This has many benefits, including the ability to keep more of the profits from each purchase as it doesn't have to leave anything on the table for the retailer. Additionally, GoPro now has a direct touch point with its customers allowing the company to upsell, cross-sell, and promote new products.
In September, GoPro expanded its camera lineup to include three models under the new Hero 11 banner. There's the flagship Hero 11 Black, the Hero 11 mini, and the Hero 11 Black Creator Edition. The mini is designed to be even more portable with all the robustness of its larger counterpart, and it can be controlled using a smartphone.
The creator edition ups the ante with accessories included, like the hand grip and light mode plus a longer-lasting battery. All three models can shoot in 5.3K high definition, and one single shot can be shared across any popular social media platform without having to manually crop or edit the content.
The mini and the creator editions are designed to increase GoPro's addressable market and in turn, the company's sales. But there's another revenue stream with even more potential.
GoPro's subscriber base continues to soar
Subscriptions are the other game-changer for GoPro. For $49.99 per year, customers can access exclusive product discounts, unlimited cloud storage for their content, and the ability to livestream directly from their GoPro camera.
In the third quarter, GoPro had 2.1 million subscribers, which represented a 55% year-over-year jump. The company says this could bring in more than $100 million in revenue during 2023. But that's not even the best part for investors. Subscription revenue has a gross profit margin of between 70% and 80%, which is more than double GoPro's hardware margin. That means more money could be flowing to the company's bottom line.
GoPro also reported 282,000 subscribers to its Quik smartphone camera application. That's not a big revenue driver, but the company is going to double down on subscriptions in 2023 by releasing synchronized mobile, cloud, and desktop editing software, unlocking more high-margin revenue.
Why GoPro stock is a buy for the next decade
Consumers are struggling with high inflation and rising interest rates, and given GoPro sells consumer products, it's natural for the company to struggle in this environment. Still, the company's third-quarter financial results came in at the high end of its guidance with $305 million in revenue and $0.19 in adjusted earnings per share.
Additionally, its revenue grew quarter over quarter across every geographic market, which is a positive given most Western countries are heading into the colder seasons and less outdoor activity can be expected.
With one quarter left in 2022, GoPro expects it will generate as much as $0.52 in adjusted earnings per share. If it hits the mark, and based on its current share price of $4.91, it will place GoPro at a price-to-earnings ratio of just 9.4. For context, the Nasdaq 100 technology index trades at a P/E ratio of 23 right now, which implies GoPro stock would have to more than double to trade in line with the broader tech sector.
Make no mistake, it's going to take time for investors to regain confidence in GoPro stock given its steep 94% decline from its all-time high. But the company has expanded its product line, improved its sales mix, and added new high-margin revenue streams. Plus, the weak economic climate won't last forever.
GoPro is making all the right moves so a decade from now, investors might look back and be glad they took a chance on the stock at this price.
