Please ensure Javascript is enabled for purposes of website accessibility

GoPro, Inc.'s Virtual Reality and Drone Plans: What Investors Should Know

By Leo Sun – Jun 2, 2015 at 8:27AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Why is GoPro expanding into virtual reality and consumer drones?

GoPro (GPRO 3.25%) doesn't want to be known only for making action cameras. At the recent Code tech conference in Los Angeles, CEO Nick Woodman discussed two new areas of growth: virtual reality and consumer drones.

Source: Pixabay.

To help consumers create their own VR videos and images, GoPro unveiled the Six-Camera Spherical Array, a ball-shaped accessory that mounts six HERO4 cameras in different directions.

The videos and photos can then be stitched together with software by Kolor -- which GoPro acquired in April -- and viewed in a VR headset, mobile app, or interactive YouTube 360 video. The device is expected to arrive later this year; Woodman didn't reveal its price or give an exact launch date.

Woodman also confirmed earlier reports that GoPro was developing a consumer drone. He didn't discuss the drone's price or design, but stated that it would arrive in the first half of 2016 and be aimed at mainstream consumers.

Expanding into VR videos and drones sounds exciting, but will these new businesses generate meaningful revenue for GoPro and diversify its top line away from action cameras?

The business of virtual reality
The virtual reality market is worth nearly nothing today, but a recent study by Digi-Capital claims that the augmented reality (AR) and virtual reality (VR) markets could generate $150 billion in combined revenue by 2020.

$120 billion is expected to come from the AR market, consisting of devices like Microsoft's HoloLens, which adds digital overlays to real world objects. The remaining $30 billion will come from VR, with over half of that going to VR games for platforms like Facebook's Oculus and Sony's Project Morpheus. Less than a quarter is expected to come from VR hardware, and even less is expected to come from VR film.

Despite its niche appeal, even claiming a small piece of the VR hardware and film market would be a nice boost for GoPro, which is expected to generate $1.7 billion in revenue this year. However, GoPro's stake in that market could be a small one limited to professionals willing to buy six high-end GoPro cameras (at $500 each) and a mount. It also isn't a new market -- 360Heros already sells similar mounts for about $500 to $600. Kodak sells a 360-degree camera for $300, which could be a more affordable way for mainstream consumers to create VR content.

Even if GoPro's VR accessories and software don't generate meaningful revenue, they could enhance the GoPro Channel, the core of its media expansion efforts, with content that could be popular with VR headset users.

Mounts from 360Heros. Source: 360Heros.

The business of consumer drones
Like the virtual reality market, the consumer drone market is a fledgling one that could grow significantly over the next few years.

Last year, revenue at DJI Innovations, the world's top consumer drone maker, roughly quadrupled to $500 million, according to The Verge. This year, that figure is expected to double to $1 billion. If GoPro's drones are as well-received as DJI's, they could diversify its top line away from action cameras.

However, many consumer drones are already equipped with GoPro mounts. That widespread compatibility could prevent consumers from specifically buying a GoPro-branded drone.

DJI's Phantom Vision 2. Source: DJI.

The drone market is also evolving rapidly. A new generation of "throw and shoot" drones recently arrived with the Lily Camera, which automatically follows and films a user at up to 25 miles per hour. Since Lily is autonomous, users don't need to worry about crashing it. It also doesn't face regulatory pressure from the FAA, since it always remains in the line of sight while flying below 400 feet. Similar devices like Nixie, AirDog, and HexO+ are also being developed.

When GoPro enters this market, it will likely launch something comparable to Lily for two reasons. First, it won't have to compete directly against DJI and cannibalize the market for GoPros mounted on larger drones. Second, an autonomous drone is well suited for GoPro's core customer base of sports enthusiasts, who would probably love to see a third-person view of the action.

The road ahead
GoPro's expansion into VR and consumer drones is fascinating, but neither plan addresses a more immediate threat: the rise of cheap action cams like Xiaomi's Yi Action Camera and Polaroid's Cube. If those devices force GoPro to lower its prices, as they already did once with the $129 entry-level HERO, GoPro's profitability and premium reputation could suffer.

Meanwhile, GoPro is arguably becoming a follower rather than an innovator. The company had a first-mover advantage with action cams, but it's now following others into the VR and consumer drone markets.

On the bright side, demand hasn't slowed down yet. Last quarter, GoPro's revenue rose 54% year over year as its net income soared 98%. If GoPro can maintain that momentum and charge into the VR and drone markets, it could turn both into long-term pillars of growth.

Leo Sun owns shares of Apple and Facebook. The Motley Fool recommends Apple, Facebook, and GoPro. The Motley Fool owns shares of Apple, Facebook, and GoPro. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

GoPro, Inc. Stock Quote
GoPro, Inc.
$5.09 (3.25%) $0.16

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.