GoPro (NASDAQ:GPRO), which has soared over 250% since its June IPO, is a polarizing stock for many investors. The bulls believe that the action-camera maker's dominant market share and brand recognition could propel the stock to new highs, while the bears believe that cheaper competitors and a sky-high valuation point to an imminent crash.

Source: Wikimedia Commons.

To address those concerns, GoPro intends to evolve from a camera maker into a media company. The company's video channel, the GoPro Network, is a collection of user-submitted content hosted on Facebook (NASDAQ:FB), Instagram, Pinterest, Virgin America, Microsoft's (NASDAQ:MSFT) Xbox Live, and Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) YouTube.

The numbers are certainly impressive -- last quarter, the number of videos on GoPro's YouTube channel -- which has 2.3 million subscribers -- surged 160% year over year. Total views climbed 200%, while total minutes watched rose 270%. Unfortunately, those numbers don't mean anything financially: GoPro revealed in its S-1 filing that the GoPro Network hadn't generated any revenue prior to its IPO. Therefore, let's take a realistic look at whether GoPro can evolve into a media network, and what major obstacles stand in its way.

How GoPro plans to monetize videos
Video content can be difficult to monetize due to the high cost of hosting videos on servers, which can offset any gains made from advertising. GoPro circumvents this problem by getting partners like YouTube and Xbox Live to host the videos. But the trade-off is that it either gives away the content for free or splits the ad revenue with its partners.

The company gives the content for free to Virgin America, which shows an endless loop of GoPro videos on its in-flight entertainment system. GoPro's arrangement with the Xbox channel is similar, but includes an option to buy GoPro products from the Microsoft Store, with revenue from each sale being split between the two companies. GoPro has also started selling ads on the Virgin, Xbox, and YouTube platforms.

Although these initiatives could generate extra revenue, simple math tells us they can't turn the GoPro Network into the company's new pillar of growth. YouTube, for example, takes an average 45% cut of its partners' ad revenue. Based on that slice of the pie, YouTube analytics site Social Blade estimates that GoPro's YouTube channel is only worth $135,500 to $1.2 million annually -- a tiny drop in the pond for a company that generated nearly $1 billion in revenue last year. Moreover, GoPro spends a lot of that money commissioning professional videos for the channel.

A lack of revenue isn't discouraging GoPro from ramping up its media efforts, however. Adam Dornbusch, the former business development head of Current TV, is now GoPro's programming chief. The company also hired former Skype CEO Tony Bates as its president in June. Under their guidance, GoPro's media team -- which now has 30 employees -- is pursuing new distribution contracts with consumer brands, TV networks, film studios, video-on-demand platforms, and smart TV manufacturers.

A way to reduce advertising costs
Although it will be tough for the GoPro Network to become a full-fledged media network, it could be a very effective way to reduce marketing costs.

Last quarter, GoPro's total operating expenses soared 90% year over year to $119.5 million. Research and development costs surged 108% to $34.7 million, general and administrative costs rose 484% to $41.2 million, and sales and marketing costs climbed 12% to $43.7 million. All those hefty expenses caused its generally accepted accounting principles-adjusted net loss to widen by nearly four times, to $19.8 million. Research and development costs are tough to cut, since GoPro needs to develop new cameras, but administrative expenses should level out after the company finishes its workforce expansion.

Meanwhile, GoPro could reduce its sales and marketing costs by relying on its video channels to increase word-of-mouth advertising and build its brand virally. Ideally, the more subscribers GoPro's channels get, the less it should need to spend on traditional ads.

The Foolish takeaway
Investors shouldn't expect GoPro's media efforts to make the high-flying stock -- which currently trades at 82 times forward earnings -- any cheaper fundamentally.

Although GoPro's subscriber numbers are impressive, they're not high enough to generate meaningful ad revenues. For now, investors should think of the GoPro Network as a way to reduce marketing costs while building its brand through social networks and other platforms, rather than the next big evolution for the young company.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.