The brand name GoPro (GPRO 3.65%) has significant cachet among a certain type of consumer. But beyond its core customer base, GoPro products aren't really a big hit. That's a problem for the company as it tries to build up a subscription business. There's a plan that might help, but for now at least, the company's subscription hopes have fallen a little flat.
GoPro cameras are for adventurous people
If you've never used a GoPro, but know anything about the company, then you probably know that many people who use its cameras like to do very frightening things, like skydiving and cliff jumping. That's exactly the purpose of GoPro's ultra-tough cameras. But there are only so many people that like to film themselves doing such activities. This is the basic problem that the company faces.
Image source: Getty Images.
In an attempt to move from episodic purchases of cameras, which can cause revenue to be lumpy, GoPro began to offer a subscription service. Essentially, you use the camera and the subscription easily allows you to edit, store, and share your photos and videos. It's actually a pretty compelling pairing, with renewal rates that are quite high. According to management, the renewal rate after year one is 60% to 65%, year two renewals happen 70% to 75% of the time, and in year three that figure jumps to around 80%.
The point of the high-margin subscription service was to create an annuity-like revenue stream, and that appears to be just what the company achieved. Given the strong renewal rates at three years, meanwhile, it seems that the product is truly offering something that GoPro's core customers want. Early growth was impressive, with the subscriber count going from around 940,000 in the first quarter of 2021 to 2.5 million in the first quarter of 2024.
GoPro's subscriptions flatline
There's one small problem, however. Subscriber growth has effectively flatlined for three quarters at roughly 2.5 million. Part of the worry here is that this includes the holiday selling season from 2023. That's a period that should have logically seen more camera sales and, by extension, more subscriptions. But this isn't what happened, and that is something investors need to monitor closely.
NASDAQ: GPRO
Key Data Points
Yes, GoPro has a great product, but it is a very niche one. If it has reached capacity in that niche, GoPro has a problem. The company knows this and is therefore trying to broaden its product lineup to appeal to more consumers. This is a solid plan, but one that may be fairly hard to make work. After all, most people have a cellphone, and a cellphone camera is more than adequate for taking most pictures.
The subscription business and the attempt to broaden out the product lineup have to work hand in hand if GoPro wants to get back in investors' good graces. If not, the consumer discretionary company, which has a spotty profit history, may not have a sustainable business. This is not to suggest that there's an imminent risk of GoPro going out of business, but that it could have a hard time remaining a stand-alone entity if it can't find a way to appeal to more customers. Subscriber count is going to be a very telling metric of the company's success.
GoPro may be as risky as its cameras are strong
GoPro has a great core product, but only more aggressive investors should be looking at the stock today. The business appears to have reached a major plateau, highlighted by the flatlining subscription numbers, and it isn't clear that it will be able to push higher from here. If it can't broaden its appeal and convince new customers to become subscribers, GoPro's board will likely have some tough decisions to make.
Unless you have strong conviction that GoPro can successfully shift its business into a higher gear, you should probably watch safely from the sidelines.
