Shares of GoPro (GPRO +7.14%) popped over 10% on April 28 after the action camera maker's first quarter earnings beat analyst estimates on the top and bottom lines.
However, the real highlight of GoPro's report was a 66% year-over-year increase in sales from Europe and Asia, which resulted in a 50-50 split between U.S. and non-U.S. sales. GoPro president Tony Bates told Bloomberg that he was "very happy" with the company's initial results in China. By comparison, revenue from the Americas rose 44%.
Source: Pixabay.
Those positive results allayed fears that GoPro's overseas expansion would be delayed, which CFO Jack Lazar hinted at during CES 2015 in January. Should investors expect GoPro's overseas revenue to keep rising, or will new challengers throttle that growth?
How GoPro can keep growing internationally
Strong overseas revenue growth isn't new to GoPro, which reported a 70% jump in sales from Europe and Asia in the fourth quarter of 2014.
Last year, GoPro launched a product assembly facility in Brazil and a European sales and marketing headquarters in Germany. It also forged relationships with Chinese online retailers JD.com and Alibaba's Tmall. GoPro plans to launch its entry-level $130 camera for its Chinese customers by the end of June.
According to GoPro, it didn't provide enough inventory to meet demand in certain cities in China when its devices first arrived in January. However, GoPro is addressing that shortage by expanding its distribution network to more Chinese cities.
GoPro is also expanding that network into Japan and South Korea. Across all these markets, GoPro is using key social communities like WeChat, Viber, and YouTube to grow its brand by connecting enthusiasts and sharing photos and videos.
GoPro controls 94% of the entire action camera market, according to Reuters. Its closest competitor, Sony, controls a mere 3%. That market dominance has made "GoPro" synonymous with action cameras in many countries, while its rivals are often referred to as "GoPro knockoffs."
GoPro hopes that premium brand appeal will help it win over overseas customers as well. The company seems to be on the right track -- consumer awareness of the GoPro brand rose 70% year over year in nine countries across five continents, according to research firm IPSOS.
Potential pitfalls
However, GoPro's strong overseas growth could be curbed by cheaper competing devices with comparable specs. Xiaomi, the top smartphone maker in China, recently launched the Yi Action Camera, a $64 device with beefier hardware than GoPro's entry-level HERO, which costs twice as much.
Other Chinese action cams like the SJ4000 Wi-Fi ($110), Evoplus E+ Full HD ($136), and the GOTOP Full HD ($65) all offer comparable hardware at similar or lower prices in multiple countries. More well-known rivals like Polaroid, HTC, Sony, and Kodak are all applying similar strategies to steal the spotlight from GoPro.
Xiaomi's Yi Action Camera. Source: Xiaomi.
This situation could result in two possible outcomes. On one hand, GoPro could be the "Apple (AAPL 1.14%) of action cams" -- a premium brand that rises above the competition while lower-end players fight over a tiny slice of the market. After all, GoPro hasn't lost market share to these rivals in the U.S. yet, and Lazar stated that the company "did not experience any noticeable pricing pressure" during last quarter's conference call.
But on the other hand, Apple was protected from the rest of the smartphone market because its operating system was unique to its devices. GoPro's action cams, however, aren't shielded by any discernible ecosystem barriers. Therefore, GoPro could actually be the "Samsung of action cams" -- a premium brand that loses market share to rivals with comparable specs.
The key takeaways
Investors should remember that GoPro is a top-heavy company that is entirely dependent on action camera sales. To diversify its top line, it recently acquired Kolor, a company which makes virtual reality and 360-degree videos. It will also reportedly enter the consumer drone market, and will aggressively expand its content sharing network. Unfortunately, none of those businesses will likely generate meaningful revenue for GoPro over the next few quarters.
If GoPro can keep posting strong top line growth in Europe and Asia, it will prove that its brand has a lot more staying power than its cheaper rivals. But if it succumbs to pricing pressure, its margins will inevitably decline.
I'd personally like to see a few more quarters of robust overseas sales before I declare that GoPro is the Apple, and not the Samsung, of the action cam market.
