GoPro (NASDAQ:GPRO) has loomed large in headlines recently -- the company recently introduced a $60 dog harness to let canines capture video, and fans are buzzing about its upcoming HERO4 camera.

Source: GoPro

GoPro's stock, however, has been a divisive topic among investors. Although the stock has more than doubled from its IPO price of $24, the company's lack of competitive barriers, widening losses, and high valuations have raised concerns. Let's dig deeper into GoPro's three main weaknesses to see if those concerns are justified.

Enemies at the gates
GoPro's biggest weakness is its lack of competitive barriers. Research firm IDC estimates that GoPro has a 47.5% market share in the action camera market, but the market is still young and fragmented. This means that smaller players will constantly try to launch cheaper devices to chip away at GoPro's market.

Polaroid recently launched the Cube, a $100 block-like video camera with a magnet with attaches to any metal surface. It can record 90 minutes of wide-angle 1080p video on a single charge, uses a 6-megapixel camera, and can be mounted almost anywhere. The cheap price of the Cube is troubling for GoPro, since its features are comparable or superior to the HERO3, which costs between $200 to $400. The $200 White Edition HERO3 can record 1.5 to 3 hours of video on a single charge, depending on usage, and uses a 5-megapixel camera.

Polaroid also recently launched the higher-end XS100i, which beats the HERO3 in both price and performance. The $180 XS100i sports a 16-megapixel camera, compared to the 12-megapixel camera on the $400 HERO3+ Black Edition. Both devices are waterproof, and can record continuously for 1.5 to 2.5 hours.

Polaroid's Cube (L) and XS100i (R). Source: Polaroid

If competitors like Polaroid are already delivering better performance for half the price, other competitors won't be far behind.

GoPro needs to cut costs to remain competitive
When that attack happens, GoPro's margins could crumble as it tries to fend off the competition. To preserve its margins, it needs huge manufacturing operations to produce more cameras quickly and cheaply.

GoPro's best potential partner is Foxconn, which acquired an 8.88% stake in the company in December 2012. Although many assumed that investment meant Foxconn would manufacture GoPro's cameras, the two companies still haven't signed a deal yet. For now, GoPro CEO Nick Woodman has signed with other smaller contract manufacturers like Taiwan's Chicony Electronics. Speaking to Bloomberg, Woodman also noted that GoPro could also afford to develop its own technology with its staff of 300, compared to a staff of only three prior to 2011.

GoPro CEO Nick Woodman. Source: Wikimedia Commons

But considering that GoPro's net loss of $19.8 million last quarter was nearly four times its loss of $5.1 million a year earlier, it's clearly having issues balancing its revenue with expenses. Research and development costs soared 108% year over year to $34.7 million, sales and marketing costs climbed 12% to $43.7 million, and general and administrative expenses jumped 484% to $41.2 million.

This means that when competitors start undercutting GoPro's cameras, the company's bottom line can't hold up unless it cuts costs through major alliances with giants like Foxconn.

Media is not the answer
Although GoPro's competitive and manufacturing issues remain unresolved, the company stubbornly believes that evolving into a media company will help it grow beyond action cameras.

That fledgling effort, the GoPro Network, is a video channel of user-submitted content that is hosted on Facebook, Instagram, Pinterest, Virgin America, Xbox 360, and Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) YouTube. During its IPO filing, the company disclosed that the network won't generate any material revenue in 2014, despite having 2.2 million subscribers on YouTube. The network is still growing -- last quarter, the number of GoPro videos published on YouTube rose 160% year over year, views rose 200%, and total minutes watched climbed 270%. 

While the GoPro Network is a great way to build brand awareness, it doesn't make sense as a full business expansion. Since GoPro is relying heavily on other social networks and platforms to grow the network, it has to split ad revenue with those partners. YouTube, for example, takes an average cut of 45% from its partners.

The only way for the GoPro Network to become a stable pillar of growth is for the company to launch its own dedicated video site. But the high costs of hosting millions of videos could easily offset any revenue gained from ads.

The Foolish takeaway
When we look at GoPro's cheaper competition, its lack of larger contract manufacturing partnerships, and its misguided belief that online video channels will become a meaningful source of revenue, we can see how hard it can be to justify the stock's forward P/E of 50 and price-to-book ratio of 83.

That's not to say that GoPro won't ever become a great growth stock, but investors should have realistic expectations about the challenges that it could soon face before diving in.