GoPro (GPRO 5.00%) stock has fallen nearly 50% since the beginning of the year. I recently explained why GoPro stock was worth buying at current prices, and shot down three bearish myths regarding its business.
On Sep. 9, CFO Jack Lazar provided some more updates regarding GoPro's future at the Citi 2015 Global Technology Conference. Let's discuss five of the key takeaways from that presentation.
Source: GoPro.
1. Brand awareness exceeds ownership
Many GoPro bears claim that the company's action cams have a limited addressable market of outdoors enthusiasts, travelers, and athletes. As a result, sales of GoPro devices could peak and plunge after that market is fully saturated.
During the presentation, Lazar asked the attendees if they owned GoPro cameras, and "15% to 20%" raised their hands. But when he asked how many attendees had watched a GoPro video, "pretty much 90%" of attendees raised their hands. Lazar noted that building brand awareness this way was the company's "primary goal" -- for mainstream consumers who didn't own a GoPro to buy one simply because they "saw a cool video" online.
2. Sharing videos generates higher camera sales
Lazar then discussed two software products -- GoPro Studio, which lets users edit their videos with "professional quality" tools on PCs and Macs, and the GoPro mobile app, which was recently updated with "trim and share" features. Lazar claims that the two products had "about 30 million" combined downloads to date.
Trimming and sharing videos so they can be shared to social networks or YouTube is a key part of GoPro's strategy to build brand awareness. Moreover, trimmed videos are cut without being compressed, so a 4K video can be shortened into 4K clips to showcase the full quality of its videos. Lazar noted that "media helps us sell (and) software helps us sell" more GoPro cameras.
3. Prior period comparisons are "dangerous"
GoPro stock recently plunged after Ambarella (AMBA +2.17%), which supplies the company with its image processing chips, reported that its wearable cameras revenue would decline sequentially and annually during the third quarter due to a lack of major product launches. Some investors misinterpreted that guidance as an indication that demand for GoPro cameras was waning, but it was actually because GoPro already launched two new cameras during Ambarella's second quarter.
Lazar warned that "comparing against prior periods is a very dangerous exercise" because it compares "apple to oranges". If we look at the launch schedule of GoPro's previous cameras, we can see exactly what he means:
|
1Q |
2Q |
3Q |
4Q | |
|
FY 2013 |
HERO3+ Black | |||
|
FY 2014 |
HERO4 Black HERO4 Silver HERO | |||
|
FY 2015 |
HERO+ LCD |
Source: GoPro quarterly reports, industry websites.
Annual or sequential comparisons mean very little on this schedule, since GoPro has been releasing new cameras every three quarters. For the third quarter, GoPro still expects its revenues to rise 56% annually -- not bad for a quarter with no new cameras. Lazar also reaffirmed that a "mid 30s to low 40s" percentage of GoPro's annual revenues would still come from its fourth quarter sales.
4. Commoditization isn't happening (yet)
Another concern about GoPro is that the action camera market will be commoditized by devices from cheaper competitors like Xiaomi, Kodak, or Polaroid. As a result, average selling prices (ASPs) could tumble and cause margins to crumble.
Xiaomi's Yi Action Camera. Source: Xiaomi.
Yet Lazar declared that the company hadn't "seen any ASP erosion", and that prices only fluctuated "up or down 1% or 2% a quarter" due to seasonal demand. Lazar also stated that the "premium" Silver ($399) and Black ($499) cameras still accounted for "over 50% of the units and certainly well over 50% of the revenue". Lazar also emphasized that GoPro had its bases covered at all price tiers between the $129 HERO and the $499 HERO4 Black.
Since GoPro still controls over half of the worldwide action camera market and its revenues rose 72% annually last quarter, it doesn't seem like customers mind paying a higher price for GoPro cameras.
5. Brick-and-mortar potential
Lazar also said that he'd like the company to "do more in-store training for people" in brick-and-mortar stores. He noted that while Best Buy (BBY 4.59%) employees knew a lot about GoPro cameras, they should take a more hands-on approach with the ice cube-sized Session, since many people had "never actually held a Session in their hand" before.
Taking a cue from Samsung, which places its own employees in Best Buy's "Samsung Experience Stores", Lazar also wants to put GoPro's own employees in local stores during the holiday season to help buyers pick out the right camera for their needs.
The key takeaways
Lazar's presentation indicates that GoPro's ecosystem growth could attract new customers, fears regarding weaker demand and commoditization are overblown, and a more hands-on approach with brick-and-mortar customers could keep its competitors at bay. This means that GoPro's cameras probably won't be rendered obsolete by smartphone cameras or cheaper alternatives anytime soon.
