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Source: GoPro.

GoPro (NASDAQ:GPRO) is the brainchild of founder and CEO Nick Woodman. An avid surfer and amateur photographer, he designed the first prototypes of the cameras that would launch this company to a greater than $8 billion valuation. GoPro as a hardware company has been a smashing success. The six best-selling Sports & Action Video Cameras on Amazon are different models and iterations created by GoPro.  

These cameras produce some of the best hardware margins around -- gross margin was over 46% in Q2 2015. This bested the roughly 40% gross margin achieved by Apple -- which, to be fair, is a company with much greater product diversity. For GoPro to have lasting success, it must follow Apple's blueprint and build a brand around itself as a media company and strengthen its ecosystem. So far, it is right on track.

No. 1 on YouTube
GoPro is the No. 1 ranked brand channel on YouTube. Nick Woodman reported that it garnered more than 40 million views last quarter. This builds brand awareness and brand loyalty. To post videos to this platform, an action sports enthusiast must have recorded her exploits and adventures on a GoPro camera. 

By focusing on events like the Tour de France -- of which GoPro is now the official camera -- the company is becoming to action cameras what Band-Aids are to adhesive bandages. This imbues pricing power and opens up potential future revenue streams from the licensing of exclusive content.

Mobile is improving as well

Gopro App

Photo: GoPro

From the Q2 2015 press release, management reports that, "the GoPro Mobile App was downloaded 2.5 million times in Q2, totaling over 18 million cumulative downloads; Q2 installs of GoPro Studio exceeded 1.7 million, up over 100% year-over-year."

Mobile usage is the future of computing, especially in countries like China, where many consumers are skipping over desktops and laptops altogether for their Internet usage. This is especially important for the company since "China is now a top ten revenue-generating country for GoPro."  

Mass adoption of its mobile app bodes well for GoPro's eventual shift into becoming a media company.

GoPro's cameras might become commoditized
Building out this impressive ecosystem of mobile apps, exclusive event streams, and a popular YouTube Channel benefits the company regardless of what happens with the price of its hardware.

Many fear that GoPro's cameras are bound to become commodity products, and that its margins will contract to appropriately thin levels. However, if the ecosystem becomes very sticky -- by making uploading a breeze, being the easiest way to get your content in front of the most viewers, or through something else management has up its sleeve -- GoPro could continue to sell its products at margins that would make it (along with Apple) the envy of the tech hardware world.

Even if the hardware does become commoditized, through competition from China and elsewhere, the moves GoPro is making now could enable it to prosper nonetheless. A best-in-class ecosystem would draw the most content, and in the world of non-linear television and online streaming, content is king.

Management is thinking about the future and many different ways to succeed. The company has a few potential paths to greatness. That said, it is still in the early innings of its high-margin hardware sales.

Speaking of margins, GoPro's are great
GoPro recently announced GAAP earnings of over $35 million, or $0.24 per share, in Q2 2015. While it had been profitable on a non-GAAP basis in Q2 2014, it posted a loss of nearly $20 million on a GAAP basis.

According to the company's earnings release, non-GAAP earnings "excludes, where applicable, the effects of stock-based compensation, acquisition-related costs, and the tax impact of these items." These are real costs to the company, and it is good to see solid profitability even accounting for these factors. A 4.2 percentage point increase in gross margin year over year combined with 71.7% revenue growth led to explosive EPS growth. 

Concerns
Founder and CEO Nick Woodman remains of fundamental importance to the business as it navigates its way from hardware company to something bigger and better. His pay certainly reflects this importance, as he was 2014's highest-paid CEO, according to Bloomberg. 

Although pay like this can be of concern, I don't think anyone is as invested in the long-term prospects of GoPro as he is -- either emotionally as founder or economically with over $2.5 billion of his net worth tied up in the stock.

A GoPro investment is not for the faint of heart. In the past year alone, its stock price has fluctuated from over $93 per share, to under $38 per share, to where it stands now at around $62. This is to be expected from a company freshly off its IPO and embarking on an unknown future.

If you believe in the CEO and the myriad possibilities for the future of GoPro, this dynamic company might deserve a spot in your portfolio.

The Motley Fool recommends, and James Sullivan and The Motley Fool own shares of Amazon.com, Apple, 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.