This week, GoPro (NASDAQ:GPRO) bulls had yet another reason to smile when its new Hero4 line of cameras were announced. Utilizing its "good, better, best" model, the company announced three more cameras: the Hero, the Hero4 Silver, and the Hero4 Black to be shipped starting Oct. 5. The company has been red hot since its IPO, climbing over 260%. Can these cameras continue the stock's fantastic run?
Pricing has increased
The devices appear to be solid, but GoPro has always had a reputation for quality. On specs, the Hero4 line is better than its predecessor. The Hero4 Black, the top of the line model, compares very favorably to its current top-of-the-line model -- the Hero3+ Silver. When it comes to high-quality 4K video, the new Hero4 Black shoots at 30 frames per second as opposed to the Hero3+ Silver's 15 frames per second. GoPro also boasts the Hero4 Black's processor is almost twice as fast as the previous iteration.
The Hero4 Silver returns to the 15 frames per second 4K video standard of its predecessors, but introduces an integrated touchscreen display that no other unit has. This allows users to preview photos, and play content from the device itself.
But consumers are paying for these new features. The new cameras are more expensive than their Hero3+ counterparts. Their entry level unit, the Hero, will be priced at $130, but the Hero4 Black and Silver will priced at $499.99 and $399.99, respectively. The previous editions were the Hero3+ Silver and White that were priced at $299.99 and $199.99, respectively.
GoPro's most important line yet?
GoPro's monumental run has stretched valuations to rather high multiples. The company originally came to market with a $3 billion market capitalization and now trades at over $11 billion. On a trailing-12 month basis, its new valuation is over 300 times earnings and 11 times sales. Even if one used free-cash flow to mitigate the effects of stock-based compensation on net income, the price to free cash flow is still nearly 100 times.
For a hardware company, that's relatively expensive. For comparison, consumer electronics powerhouse Apple trades at a price-to-earnings ratio of 16, a price to sales ratio of 3.3, and a price-to-free-cash flow ratio of 12. Now it should be noted that investors are paying for growth as well and it is widely accepted that GoPro will grow faster than Apple, but these valuations may be tough for GoPro to maintain.
The investment faces headwinds
In addition to valuation concerns, the bearish argument centers on two distinct issues: competition and content monetization. While GoPro was, without a doubt, the first to design a high-quality camcorder for the adrenaline junkie, other camera makers (Sony, Panasonic, and Garmin) are moving into this lucrative category. GoPro has first-mover and top-dog advantage, but needs to maintain its dominance for shareholders.
A way to ensnare users into its ecosystem and grow revenue is to build, maintain, and monetize content. So far, the company has done that by growing its GoPro Network. As a matter of fact, the company boasted growing the number of GoPro videos and overall views on YouTube year over year 160% and 200%, respectively. However, when interviewed about specifics in an August interview, CFO Jack Lazar was rather ambivalent about the company's content monetization plans.
GoPro's new camera line looks to be a solid step forward in time for the seasonally heavy holiday quarter. Investors also like what they see; the stock was up nearly 8% in response to the news. Can sales of these three new cameras continue to support its high valuations while investors wait for content monetization to come online in any meaningful way? Perhaps. But one thing's for sure, GoPro as an investment is about as exciting as the videos shot on the company's cameras.
Jamal Carnette 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.