GoPro (GPRO +3.74%) listed on the stock market in 2014 priced at $24 per share. It promptly surged to a high of $93.85 before gradually sinking 95% over the last nine years to trade at just over $4 today.
Normally, investors' default setting would be to avoid that kind of stock at all costs. But the leader in action camera technology is making legitimate progress in turning its fortunes around. The company has expanded beyond selling hardware products alone, unlocking new revenue streams with high profit margins in the process.
With that said, GoPro's 2023 first-quarter financial results disappointed, especially because the company generated a net loss. But here's why the future looks much brighter and could result in significant gains for investors who buy GoPro stock today.
Image source: Getty Images.
GoPro.com subscriptions remain a bright spot
GoPro's business was one-dimensional for a long time. It sold action cameras and accessories, and that was basically it. But over the last few years it has introduced a GoPro.com subscription and a smartphone camera app, and it's gearing up to release desktop-based video editing software in 2023.
The GoPro.com subscription gives customers exclusive product discounts, unlimited cloud storage for their videos, and the ability to live-stream directly from their camera for just $49.99 per year. Subscription revenue comes with a gross profit margin of between 70% and 80% (compared to under 40% for camera hardware), so growing this segment is key to improving the company's profitability.
It had 2.36 million subscribers at the end of Q1, which was a 36% year-over-year increase, and it expects to end 2023 with as many as 2.6 million. Those subscribers are set to generate over $100 million in annual recurring revenue for GoPro. Although that's only 9% of its projected $1 billion in total revenue for this year, the high gross margin suggests it could be a meaningful contributor to the company's earnings.
GoPro is making some key adjustments to its sales model
GoPro.com subscriptions are driven by camera sales because customers typically sign up shortly after making a purchase. The company sold 575,000 hardware units in Q1, which was well above its forecast of 525,000, prompting it to lift its full-year estimate to 3.2 million units (from 2.9 million previously).
GoPro has two main sales channels: It sells cameras through major retailers, and also through its own website. But over the last 12 months, retail chains have accounted for the majority of sales and, therefore, they're driving the majority of GoPro.com subscribers.
The company reduced its retail footprint by 30% during the height of the pandemic in 2020 and 2021, and it also increased its camera prices by around $100 to offset supply chain issues. But GoPro just outlined a strategy to regrow its retail presence and also reduce prices back to 2019 levels to ensure it's meeting as much consumer demand as possible.
By doing so, the company estimates it can grow sales to over 4 million units in 2025, which points to as many as 3.1 million subscribers by then, too.
NASDAQ: GPRO
Key Data Points
Here's why GoPro stock might be a buy now
GoPro delivered $175 million in revenue during Q1. While that was above its guidance, it was a 19% decline compared to the same period last year. High inflation and rising interest rates have crimped consumer spending, especially on non-essential products like cameras. But poor economic conditions don't last forever; increasing sales and subscriptions over the long term will be key to reigniting GoPro's stock price.
The company generated a net loss of $28 million in Q1, marking its first quarter in the red in almost three years. But the good news is that GoPro expects a recovery for the full-year, and could deliver up to $0.15 in non-GAAP earnings per share based on its guidance. And in 2024, analysts expect that figure to grow by a whopping 273% to $0.56.
GoPro is so confident in its ability to generate long-term growth and maintain profitability that it's returning $70 million to shareholders this year through a stock buyback program. This reduces the number of GoPro shares on issue and organically lifts the price per share, to the benefit of investors.
GoPro stock trades at a rock-bottom valuation right now. Its price-to-sales ratio is less than 1, based on the company's $630 million market capitalization and $1 billion in forecasted revenue for 2023. It also trades at a price-to-earnings (P/E) ratio of 19.2 (based on $0.21 in trailing 12-month earnings per share), which is a 31% discount to the 28.1 P/E of the Nasdaq-100 index.
Therefore, even though it'll probably be a bumpy ride over the next few quarters, investors are getting an attractive risk-reward proposition in GoPro stock right now.
