GoPro Swings To Profit In Q2 Earnings, Shares Gain

  • GoPro reported a strong Q2 earnings report, trouncing analyst estimates on both the topline and bottomline.
  • The company delivered a 72% topline growth and a profit of $35 million which was up from a $19 million loss in Q2 2014.
  • International sales and new products and services will continue to drive long term growth, making the GoPro stock attractive for the long term.
GoPro earnings release Q2 2015

Maker of extreme action video cameras GoPro (NASDAQ:GPRO) has extended its streak of surpassing revenue and earnings estimates every quarter when it reported its second quarter results at the close of market action on Tuesday.GoPro earnings and revenue have topped projections in every quarter since its July 2014 IPO and the latest quarter was no different. The company reported revenue of $419.9 million, up 72% Y/Y, and an improvement over first quarter growth which clocked in at 61.9%. Meanwhile, GoPro swung from the red to the black after delivering a profit of $35 million, or EPS of $0.24 compared to a loss of $19 million that the company booked during the prior year period.

GoPro has been able to maintain an aggressive rate of innovation during its short stint as a public company. The company launched five new cameras during the last 10 months alone, including the HERO4 Session and HERO + LCD which have proved to be hits. High-end cameras such as the $400 HERO4 Session have been instrumental in helping the company maintain blistering top line growth. Meanwhile, GoPro has been able to extend its international reach quickly, and international sales accounted for 50% of overall sales.

GoPro’s New Cameras

Source: TechCrunch

Despite the impressive top and bottom line beat, GoPro shares at first traded down as much as 8% indicating a general air of pessimism that has engulfed the tech sector after IBM (NYSE: IBM) and Apple (NASDAQ:AAPL) reported results that failed to meet investor expectations. IBM extended its streak of falling revenues to the 13th quarter while Apple earnings release failed to disclose Apple Watch sales and also issued guidance that came in below heightened expectations.

GoPro shares, however, managed to recover from the initial selloff to pare back their losses and make good gains.

GoPro 5-Day Share Return

Source: CNN Money

Perhaps investors finally woke up to the reality that the company had managed to turn a profit even while maintaining robust top line growth. Many growth companies usually have to sacrifice some margin of top line growth to become profitable, usually through reining in on expenses such as R&D and Sales and Marketing. The fact that GoPro has been able to achieve this feat while its growth continues to accelerate should not be overlooked.

GoPro Video Licensing

GoPro took the first steps to try and monetize the millions of videos that users of its products churn out every year after it recently launched a platform that people can use to upload videos of their extreme action activities. Using the platform, professional athletes and GoPro users can upload high quality videos which GoPro will license to marketers for a fee. GoPro is billing the platform as one that only accepts videos of the highest quality, and this reflects on the asking price--videos start at $1,000 apiece for a 6-month license. This is the first attempt GoPro is making at transitioning from a pure-play hardware company to a media company.

At this point it’s not yet clear what GoPro’s cut will be. Video services such as YouTube take 45% of revenue generated from ads placed on videos while leaving 55% for content creators. Although GoPro’s cut might not be in the ballpark of YouTube since the platform is not designed to be consumed in a similar manner, its cut might still be substantial and could provide meaningful revenue for the company a few years down the line. YouTube is a lucrative platform for Google (NASDAQ:GOOGL) as evidenced by the $4 billion in revenue it brought in for the search giant. Yet many marketers carp about the low quality of videos on the platform, and hence YouTube is unable to make a profit due to low CPM rates for ads on the platform. I believe GoPro’s new video licensing platform could become an important repository for high quality videos that marketers and ad platforms such as YouTube can use in their ad campaigns. Maybe even Facebook’s (NASDAQ: FB) upcoming Suggested Videos will make use of the platform as well. By maintaining a tight rein on quality, GoPro’s video licensing platform might be able to compete favorably against similar platforms such as Shutterstock and Getty Images which offer lower quality videos.

Over-Priced Shares Can Grow Into their Steep Valuation

Trading at a PE ratio of 69.1, GoPro stock certainly looks pricey. The PS reading of 5.6, however, appears much more palatable thanks mainly to the company’s strong sales numbers. Though the shares are expensive when viewed on a standalone basis, they seem to be priced just right for a growth company that’s expanding at GoPro’s current clip. Valuation gripes were a common bear theme when the company was still languishing in the red, but should now ease considerably since GoPro has started making profits. GoPro is projected to grow its earnings at 15% CAGR over the next 5 years. This should provide it with enough gas to outgrow into its steep valuation and make decent returns. This makes the shares suitable for the long haul.

Brian Wu Brian Wu   on Amigobulls :

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