GoPro (NASDAQ:GPRO) stock has more than tripled in value since its IPO in June at $24 per share. But the way up has been a bumpy one. After trading as high as $98 in October, the stock cooled off and pulled back to the mid-$70s last week.
Let's take a look at the three key lessons that investors should learn from GoPro's tumultuous year.
The stock moves on news
In October, GoPro stock plunged 14% after CEO Nicholas Woodman and his wife gifted 5.8 million of their shares to charity. It wasn't the gifted shares that spooked investors, but the fact that the IPO's book runner, J.P. Morgan Securities, allowed the Woodmans to give away their shares before the lockup period ended. This meant that other major investors might be able to dump their shares via the same "loophole."
Later that month, a French journalist linked Michael Schumacher's brain injury -- sustained during a skiing accident -- to his GoPro camera, causing GoPro stock to plummet 16%. Although the journalist later retracted his statement as an "opinion," the damage had been done.
Earlier this month, GoPro priced a secondary offering of 10.4 million shares at $75 each. GoPro will sell nearly 1.3 million of its own shares, but existing shareholders will sell over 9 million of theirs. GoPro shares plunged 9% immediately after the announcement, and have remained under the $75 level ever since.
GoPro investors should expect headline-related volatility to continue in the near future.
A brand can become a noun
GoPro's core advantage is that its brand has now become the de facto name in the product category. It is the "Q-tip" of action cameras, so to speak. GoPro's many cheaper competitors are often referred to as "GoPro knockoffs," thus reinforcing the brand's position as the top-tier action camera. That brand name recognition helped GoPro conquer 45% of the U.S. camcorder market in 2013, compared to just 11% two years earlier.
GoPro is capitalizing on that brand name recognition. First, it's challenging low-end competitors head-on with the $129 entry-level GoPro HERO, which offers comparable features to many $100 devices on the market. The HERO is still slightly pricier, but the company is betting that consumers will feel more inclined to buy an official GoPro camera than less well-known budget devices like the Monoprice MHD Action Camera or SpyTec SJ-1000.
Second, it's encouraging users to share their content on the GoPro Network, which is featured on Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) YouTube, Microsoft's (NASDAQ:MSFT) Xbox Live, and Virgin America's in-flight videos. YouTube analytics site Social Blade estimates that GoPro's 2.46 million YouTube subscribers only generate $173,800 to $1.4 million in annual revenue, but the current focus isn't profitability -- its viral advertising and brand building. The more people refer to action camera videos as "GoPro videos," the more likely they are to buy a GoPro camera.
The road ahead
For now, GoPro will remain a polarizing stock. It must prove that higher end ($400 to $500) HERO cameras can defend its market share against cheaper competitors with comparable specs. It needs to prove that the GoPro Network, which the company keeps touting as a future pillar of revenue growth, can be monetized.
But there are signs that GoPro is here to stay. Its sky-high valuations are cooling off, and its brand name is synonymous with action cameras. Most importantly, the worldwide action camera market could grow from 5 million shipments in 2013 to 9 million by 2018, according to Futuresource Consulting, and GoPro will be first in line to benefit from that growth.
Leo Sun owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and GoPro. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Microsoft. 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.