Just four months after going public, GoPro (NASDAQ:GPRO) shares have soared. At the peak, shares had more than quadrupled the $24 offering price. With the stock enjoying such impressive performance amid investor optimism, GoPro has decided to take advantage of the lofty share price.
Well, the company itself is only partially cashing in. Executives and early investors, on the other hand, are lining up to cash out some of their holdings.
While the getting's good
GoPro has now announced an $800 million secondary offering. Since it's only been four months since the IPO, this is technically considered a follow-on offering, which isn't uncommon. Of that total, only $100 million in new capital is being raised, which should be a silver lining to investors, as the vast majority of this offering will not be dilutive. To be clear, there will be some dilutive effects, as with all new equity issuances, but it could be worse.
The remaining $700 million in stock is being sold by executives, company insiders, and early investors. That includes CEO Nick Woodman, who also sold $122 million worth of shares in the IPO. As of right now, Woodman and his wife own over 45 million shares through a trust, which commands 44% of GoPro's total voting power. Woodman did not specify how much of his stake he was selling, but he reaffirmed his commitment to the company's long-term vision in an email to employees that was made public.
In addition to raising $100 million of fresh capital for general corporate purposes, the offering will also mitigate possible selling pressure associated with GoPro's upcoming lock-up expiration, which is scheduled for December 22. The offering hopes to enable an orderly sale so early shareholders don't flood the market, as 108 million shares would be free to sell on that date. Large shareholders participating in this follow-on offering will be subject to a new 90-day lock-up agreement. That also means GoPro is effectively creating another lock-up that could still potentially pressure shares in early 2015.
Can GoPro be the hero investors need?
While management and early backers cashing out doesn't exactly inspire investor confidence, as shares fell following the announcement, investors should be more concerned with whether or not GoPro can live up to its lofty valuation. GoPro has undoubtedly dominated the wearable camera market, but it remains unclear if the trend will reach mainstream adoption.
The company did put up 46% revenue growth last quarter, and it even turned a profit, but GoPro will need to keep that up for quite a while to make the current valuation palatable.