GoPro (NASDAQ:GPRO), with its 100% jump after the first several days of trading, undoubtedly appears an attractive tech buy. While the stock started with the steep price of $24, investors had no problem boosting that to above $48 by July 1st. The company, with its action-shot wearable cams, has seen a high rate of growth in recent years, selling a total of 8.5 million HD cameras since 2009 and reaching 2013 profits of $60 million, an 88% increase from 2012. Total revenue rose by a similar 87% from 2012 to 2013, to $986 million . .
At first glance, these look like great figures for the bullish, and GoPro has retained a tight focus around its strong brand and limited product line of "Hero" cams and related software, costing between $300 and $400. But if GoPro wants to succeed in the long run, it needs to overcome several challenges, including those from Garmin (NASDAQ:GRMN) and Sony (NYSE:SNE), that could lead to a slowdown in this rising star.
Making the jump to broader entertainment
In its S1, GoPro made the case for jumping beyond wearable cams, billing itself as a broader type of entertainment and sports business. It has signed deals with Microsoft for an Xbox Live channel and YouTube for a space to show videos. The YouTube channel alone has 1.8 million subscribers, people invested in following clips of the latest extreme tricks, climbing adventures, and sports close-ups. The next step is turning this habit of posting wild videos into a revenue stream -- one that could stretch beyond sports montages to include interviews, documentaries, scientific pursuits, and travelogues.
GoPro has not yet revealed specific plans for its new media identity. Some investors worry that the company is another Flip, a video camera doomed to be surpassed by the capabilities of smartphones in the mid-2000s. More detail on this expanded strategy needs to be displayed, especially with competitors at the company's heels.
Let's talk about those competitors
First up is Garmin, a company also known for its tight focus and its popular, action-oriented brand. Garmin sells a Virb wearable cam line ($300 to $400), which includes an app that connects it to other Garmin devices, including heart rate monitors. Garmin, mostly known for its GPS units, has seen a recent resurgence in share price, moving from below $40 in latter 2013 to about $60. The company has been embracing new technologies lately, from its activity trackers bands to GPS dog collars. On April 30, Garmin reported a 10% rise in year-over-year sales for its latest quarter, a sign this company may be back on track and ready to challenge GoPro for its territory.
Sony is another potential roadblock for GoPro. As the electronics company backs away from the PC and TV markets, it is looking for better sources of revenue, such as its Action Cam line (also around $300). The success of GoPro could convince Sony to spend more time with cam products, which have recently been upgraded to provide competitive features like live Internet streaming. However, with an expected $489.5 million loss for this fiscal year, Sony may be under pressure to drop more product lines, particularly those facing an entrenched competitor like GoPro.
Facing the future
GoPro understands its appeal. The challenge will be diversifying into other areas while keeping its brand strong. Going up against big players like Garmin and Sony could be dangerous, and their competing devices could be the reason that revenues declined by 7% year over year for the first quarter of 2014. The stock is hot now, but GoPro still has a lot to prove this year if it wants to justify long-term growth expectations.
Tyler Lacoma has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.