GoPro: Business and Stock Review 2020–2021
With an on-going global pandemic and no sports events or traveling in 2020, how come GoPro is profitable and undervalued?
When asked “what GoPro is”, most people worldwide would tell you it’s an action cameras company, sponsoring many sports events and athletes globally. GoPro is one of the well-known brands out there, and it resonates positively with many.
But since founded in 2002 by Nick Woodman (who is still the company’s CEO), GoPro saw many ups and downs, especially between 2015 and 2018. How is it doing today? The company had to endure heavy losses and internal changes to continue its innovation in the camera industry, but also in lifestyle and software.
Let’s take a deep dive into one of the most exciting businesses out there to me and find out how GoPro became so resilient in the past year, making it a stock to go after in 2021 and beyond.
The Stock & Fundamentals
By looking at the company Income Statement and Balance Sheet, you will find some remarkable details.
- Q4 2020 Revenues from GoPro.com (the company’s site) was $116M (new record), 91% higher than last year. Total Q4 Revenues are $357.77M.
- Q4 2020 Gross margin was 38.3%, which reflects the continued demand for GoPro products.
- Q4 2020 Net Income was $44.41M. Comfortably profitable again since Q4 2019.
- Improved cash flow at the end of 2020 puts GoPro at $325.65M, 116% Growth Year over Year. Long Term Debts are only $218.2M (Good)
- Total Current Assets are $556.68M compared to Total Current Liabilities of $262.69M (Good)
- 3.6M Camera units sold in 2020.
The current Balance Sheet Ratio is above two (2.12), meaning they have enough in the value of total existing assets to fulfill their financial obligations for at least the next 12 months. That’s incredible.
With total revenue of $891.93M in 2020 and a current market cap of 1.24B, stating that GoPro is currently undervalued will be an understatement. There’s no question about it.
How Did That Happen?
GoPro develops high-action, high-impact cameras. A bit over a year ago, GoPro started to focus on cloud tech with a subscription-based business model heavily.
In Q4’s Earnings Report, GoPro announced how they grew to 761,000 subscribers at the end of 2020, a 145% increase compared to the end of 2019. Impressive growth here as well. More on that under the first Risk Factor below.
For a company that was primarily relying on yearly physical product sales, shifting the focus to a monthly subscription fee for digital experiences will now be one of the leading revenue streams, if not the main one.
Then Why The Stock Fell 20% After Q4’s Earnings Report?
During 2020 analysts set up expectations that GoPro could beat, so they raised the bar much higher for Q4. GoPro managed to exceed Non-GAAP EPS expectations by $0.01, but they missed GAAP EPS by $0.03.
Also, GoPro missed revenues Year over Year by $15.84M, a decline of 32.3%. When those are the first things you read on most news sites, there’s considerable potential for an investor to either panic or re-think their investment and sell their positions.
GoPro’s stock was always volatile, and history shows that the public reacts fast to negative or positive press releases and news.
But with GoPro’s current price of $8.26, while considering 2020’s fundamentals, it’s a shocker that most people do not see the potential and opportunity GoPro presents.
I also think that most people wouldn’t even want to hear any details about the stock because they are looking at a veteran business with a low price tag. So they will ultimately wonder it’s too big of a risk and that it’s only downfall from here.
Like any other publicly-traded company, many risk factors are presented. I want to focus on just a few today and how, in my view, GoPro has answered the challenge.
To remain competitive and stimulate consumer demand, GoPro must effectively manage product introductions, transitions, pricing, and marketing.
What GoPro did with 2020’s camera model, the new GoPro Hero 9, is honestly brilliant. For the first time, they presented the ability to switch lenses, and the camera is built in a way that it can quickly mount, as they call it, ‘Mods’. That means lighting, an extra monitor, a microphone, and a tripod.
GoPro creates a state of the art cameras. The cameras are not cheap and not easily breakable. The average consumer will ask himself twice if they should upgrade to the latest model.
With that fact in mind, even if a GoPro consumer is not buying a new camera, they can easily consider buying a new lens or other Mods. That’s on top of the monthly subscription model for the cloud service.
The new sales opportunities introduced by the new line of cameras combined with the digital subscription make GoPro’s future revenue stream much more robust than in past years.
GoPro relies on third-party suppliers, some of which are sole-sourced suppliers.
GoPro didn’t specifically mention sales on GoPro.com by accident. They found a suitable model to increase growth in sales independently. With data analyzed and tests being done in 2020, it’s no question that GoPro will continue to focus on driving sales through the main company site.
GoPro.com is a significantly lower-cost customer acquisition channel, and focusing on that compared to third-party suppliers may result in a reduction of operating costs and increased revenue.
GoPro still relies on and will continue to distribute its products globally through third-parties, but with the on-going pandemic, it’s good to know they have other options.
GoPro may appear as a closed community that is serving GoPro consumers only.
You might say that to join the GoPro community, you need to buy a GoPro camera. As stated above, GoPro is a tech company. They do not just make excellent cameras. They create software too. Their video editing app “Quik” has around 9M monthly active users. And they improved the main GoPro app with a new feature called “Mural”, which helps GoPro camera users share their own stories and exciting moments with the rest of the community more easily.
In 2021 though, GoPro will introduce new features and support in their apps to non-GoPro users. That means that other action cameras or your mobile smartphone camera will be able to utilize these features. That increases the Total Addressable Market (TAM) of GoPro, which can potentially result in more sales and new subscribers.
Who is Nick Woodman?
Nick Woodman, the founder and CEO of GoPro, is also behind the first GoPro camera’s invention.
In his early entrepreneur life, Woodman founded two startups. One of them was ahead of its time, if you consider today’s enormous gaming and esports industry. Both startups shut down.
GoPro saw massive success in the first few years, and Woodman was even the highest-paid CEO in the US in 2014. But after that, a series of bad decisions leads to incredible losses, job cuts, and lawsuits. At some point, Woodman even considered selling the company.
One of the key things that lead to some bad years was trying to go all-in with Drones and many other projects. after the IPO, massive hiring, and a lot of good publicity, something didn’t go well. After shutting down the drones division, layoffs, and restructures, the path forward was about simplifying workflow, investing in core projects only, and doing everything to get back to the roots.
In an interview during CES 2020, Woodman said: “For so many years we were building the brand and building the products, getting up to speed with technology, and trying to get the product experience and the technical performance to match the ideal of the brand”.
For me, it represents perfectly well the era of the early years, 2015–2018, and 2019–2021.
Woodman grew as an entrepreneur with no experience in building GoPro 19 years ago. He was 26. He had bad publicity for years, but here he is now. From incredible losses at the prime years of his company to profitability, with a clear strategy in mind.
Are there even any alternatives for action camera consumers? Yes. There are many other action cameras on the market today.
Most of them are also providing very good results in terms of video quality and material resistance. But who are these competitors? Sony, Olympus, Campark, Uniden, TomTom, and more. There’s honestly a long list.
But, there is something that they all have in common. And that is, it’s not their main product line. GoPro is unique for a few reasons:
- They were the first to introduce the commercial action camera, back in 2004. It was also waterproof back then. Being first is also important.
- GoPro as a brand is known in almost every household, and it is tied up perfectly with the extreme sports lifestyle.
- They focus on producing great action cameras, while their competitors are also making security cameras, projectors, baby monitors, drones, and more.
Focusing only on what you do best is one of GoPro’s strongest point to me.
GoPro stock saw 52 weeks high with $11.19 on February 2nd. Almost 40% increase since the start of the year.
As discussed, after the Earnings Report on February 4th, the stock fell hard, and it’s now seeing support at $8.
With its current market cap, cash flow, and company’s projections to…
- Grow Q1 2021 revenues by 55% over Q1 2020.
- Grow revenues coming from GoPro.com to be 38%-42% of overall sales.
- Reach 1M subscribers by Q2 2021 and 2M by the end of 2021 (2M subscribers is a significant mark to reach, but it would represent $100 million of annual recurring revenue).
- Be profitable in 2021 with $470M to $500M cash.
Even if the stock will continue to be volatile until the following earnings report and for the rest of the year, it is still in my belief. Based on other analysts’ reports too, that GoPro’s fair market price should be around $20 today. It’s more than 100% growth.
So if projections of revenues for Q1 2021 will be achieved, the stock’s value should probably even exceed $20, and by the end of the year, we might even see it reaching $30 or more.
GoPro is on a mission to transform the way people visually capture and share their lives. There will always be a challenge for GoPro to invent and disrupt the industry, especially with smartphone cameras everywhere. In my opinion, a smartphone camera is losing its charm compared to GoPro, as it lets the consumer be more creative not just in their surrounding area but especially when traveling. I’m not even talking about extreme sports, which for that you can achieve nothing with a smartphone camera.
The people at GoPro are marketing geniuses, and they create unique products. From reading the 2020 Earnings Report, it looks like they found the sweet spot of maintaining operational expense management that translates into improved cash flow and profitability.
To me, with GoPro’s impressive fundamentals, especially while a global pandemic that hit us in early 2020 is still on-going, it’s making them a much safer investment with an incredible price, with room to grow. Investing in a company like GoPro ensures continued innovation, new hardware, and software.
They have come a long way, R&D invested was worth it with the latest models of GoPro, and tech reviews are great. I can’t wait to see what products will be announced this year.
But above all, with vaccine stimulus plans around the world, with hopes to open the borders and re-ignite worldwide traveling, that means increased usage of GoPro products, with the potential to increased demand in 2021 and beyond.
Disclaimer: I’m not a financial advisor, and I’m not qualified to provide investment advice. This article is based on my research and opinions only. Please do your own research when investing in the stock market.
Thanks for reading! Would love to hear what you think too. You can follow me on Twitter (@asaflivne) to talk and to get updates on new blog posts.