- 2015 was a year to forget for GoPro investors.
- GoPro stock now trades at a market multiple, and its markets look saturated.
- There are still many roads for GoPro to take for investors buying hope and change.
GoPro (NASDAQ:GPRO) was one of the great business stories of 2014, its cameras achieving a major market breakthrough with revenue of nearly $1.4 billion and profits of $128 billion, representing 40% growth on the top line and a doubling of net income.
But in 2015 GoPro became like Yogi Berra’s famous restaurant – nobody goes there anymore it’s too crowded. GoPro's top line growth is slowing, although $1.2 billion in sales was booked for the first three quarters, and the whisper number is for $539 million in sales during Christmas, bringing the total to $1.734 billion. GoPro's earnings, however, are expected to come in at 18 cents per share, up from last quarter’s 13 cents but below the second quarter’s 24 cents. GoPro's last quarter was a miss.
The consumer market for GoPro cameras seems saturated, and the company needs to now integrate the cameras as part of larger products. GoPro's first corporate effort in that direction is a drone called Karma, due to support a 3D camera. GoPro is also working with Alphabet Inc-C (NASDAQ:GOOG) on a rig called Spherical, sporting many cameras to achieve the effect and with Facebook (NASDAQ:FB) on 360 degree videos meant to increase demand for Oculus Rift headset.
GoPro is also achieving success with start-ups, again as an ingredient in something larger. Pixelio is a 3D scanner that combines the GoPro with an Apple (NASDAQ:AAPL) iPhone to create a personal 3D scanner. GoPro is continuing to advance its studio software -- free now but a potential profit center down the road.
The problem for GoPro is that the hype cycle for these products has turned negative. Drones are no longer cool, they’re a menace. Cameras that photograph your bicycle ride are only worthwhile when you can fast-forward to the accident. Skepticism has been the rule around GoPro stock in 2015, and it fell hard during the year, first slowly, then quite quickly starting in August, to finish at $18 from a January high over $60. This took the Price/Earnings multiple people were willing to pay for GoPro stock to 15, close to a market multiple.
Even at today’s bargain levels, don’t buy GoPro stock expecting a huge pop back. OEM deals and software are hard to do. They’re not terribly exciting. GoPro might be better off right now as part of a larger company, like Facebook, and with a market cap of $2.5 billion it’s highly digestible. The same would be true for Apple or Alphabet, which could absorb GoPro’s products into larger systems.
Now might be a good time for GoPro to call in some investment bankers, not only to consider selling but to think about going private until it has something insanely great to show off, or help it buy another photography company like Eastman Kodak (NYSE:KODK), which still has a name to conjure with. Or Avid Tech (NASDAQ:AVID), which makes movie editing equipment. Or Nikon (OTC:NINOY), the Japanese camera company. GoPro, even in its weakened financial position, still has the market cap to take out any of these big names.
If you buy into that, however, know that you’re buying hope, hope that founder-CEO Nicholas Woodman can navigate what are now rough and stormy seas, hope that Original Equipment Manufacturing (OEM) and software sales can keep sales growing, hope that a big deal will take you out at a profit.
Tech investors, however, generally do better investing in hype rather than hope. Personally I’m going to root for GoPro stock from the sidelines.