GoPro Weak First Quarter - What Investors Are Missing

Jul. 3.14 | About: GoPro (GPRO)


60 Minutes Profile in November 2013 Should Have Been a Marketing Bonanza.

The Red Flag: Why Did Sales Fall in First Quarter 2014?

Is GoPro Sales Momentum Already Running Out of Steam?

For Seeking Alpha readers who are unfamiliar with GoPro (NASDAQ:GPRO) (if there are any) its business is rather simple. GoPro makes small video cameras that are designed to strap onto users and allow them to document their personal experiences. This first person approach to video recording makes for some compelling footage and many GoPro recorded videos have gone viral. Here is how the company described its business in its IPO prospectus:

Our business focus

Enabling engaging content is at the core of our business. We develop hardware and software solutions to alleviate consumer pain points associated with capturing, managing, sharing and enjoying engaging content.


Our mountable and wearable cameras and accessories, which we refer to as capture devices, enable professional-quality capture and exceptional versatility at affordable prices. Our products' small, lightweight, yet durable designs make them easy to use even in highly challenging situations. In addition, our remote control solutions and our seamless integration with mobile devices via the GoPro App, our mobile application, enable engaging self-capture during virtually any activity.

Since launching our first high-definition, or HD, capture device in July 2009, we have sold more than 8.5 million HD cameras, including more than 3.8 million in 2013. We sell our products in over 100 countries and through more than 25,000 retail stores. According to The NPD Group's Retail Tracking Service, GoPro was the #1 selling camcorder (by dollars and units) and a top six selling camera accessory company (by dollars and units) in the United States in 2013. Also according to The NPD Group, our HERO cameras represented a 45% share of the U.S. camcorder market (by dollars) in 2013, up from an 11% share during December 2011 and our camera accessories represented a 4% share of the U.S. camera accessory market (by dollars) in 2013.


We seek to eliminate the pain point of managing content by making it easy for our customers to transfer footage from their cameras to a system that efficiently organizes their content and facilitates convenient editing and sharing. GoPro Studio, our desktop application, and the GoPro App, reflect the early stages of our content management platform strategy.

GoPro Studio enables our customers to quickly edit simple or complex videos and create videos from time-lapse photo sequences. As of March 31, 2014, there had been more than 4.3 million downloads of GoPro Studio. During the first quarter of 2014, our customers in the aggregate exported, on average, 20,000 videos per day using GoPro Studio.

In addition to facilitating full camera control from a mobile device, the GoPro App enables a customer to easily and wirelessly copy footage from a GoPro camera to a mobile device for storage and sharing without a computer.


By facilitating the capture, management and editing of engaging photos and videos, we are ultimately helping our customers share more compelling personal content. GoPro Studio and the GoPro App facilitate the posting of photos and videos directly to leading social networks and content platforms, including Facebook, Instagram, Twitter, Vimeo and YouTube. Thousands of GoPro customer photos and videos are shared daily, driving awareness and enthusiasm for our customers' content, as well as for GoPro's own brand and products. In 2013, our customers uploaded to YouTube approximately 2.8 years worth of video featuring "GoPro" in the title. Also on YouTube, in the first quarter of 2014, there was an average of 6,000 daily uploads and more than 1.0 billion views representing over 50.0 million watched hours of videos with "GoPro" in the title, filename, tags or description.

The publicity surrounding the IPO, most notably the immense amount of coverage by CNBC, will likely help lift GoPro's profile and may lead to a spurt in sales. However, for an indication of whether GoPro itself is in the process of going viral and becoming something special, recent revenue numbers may provide an important clue:

Click to enlarge

Go Pro had excellent revenue growth of 224% from 2011 to 2012 followed by a great growth rate of 158% from 2012 to 2013 but what happened in the first quarter of 2014? Revenues actually declined by 8% in this most recent quarter.

At a recent price of $43 per share, GoPro sports a market capitalization of $5.3 billion on 2013 sales of $986 million, resulting in a price/sales ratio of 5.4. GoPro has a P/E ratio of 87 based on 2013 net income of $60,578,000. These are very hefty valuation numbers, even for a company in a rapid growth phase. From an investors' perspective the key question to examine is what happened in the most recent quarter?

Some may argue that GoPro management was distracted by the time intensive process leading up to last week's IPO. I don't buy that argument. Moreover, there's a side story to the first quarter results that should have done much more for the company to counteract any IPO distraction theory. The side story I am referring to is a free marketing bonanza, unappreciated by investors, that should have boosted sales significantly.

On November 10, 2013, GoPro was featured on 60 Minutes in a very flattering segment watched by 15 million viewers. Readers should watch the program and judge for themselves how valuable this segment, narrated by Anderson Cooper, should have been to sales growth and profitability. This was a one time marketing gift handed to GoPro and unlikely to ever be repeated ... a "one time non-recurring item", so to speak. One would logically expect this marketing bonanza would have had some staying power and translate into year over year revenue growth, not only in the 4th quarter of 2103 but in the first quarter of 2014. That didn't happen and it's hard to understand why.

Ad Age reported that CBS charged $104,190 for a 30 second commercial on 60 Minutes in the 2013-14 season. A continuous 17 minute segment at these rates would cost into $3,542,460. However, what multiple would you put on this figure when this is not just a commercial but a 60 Minutes editorial segment gushing over GoPro's products? 10 times that amount, 20 times? The answer is subjective but editorial content is much more valuable than a commercial. Although the average 60 Minutes viewer may not be the target demographic for GoPro, the exposure generated by this program is very substantial and one should have expected a significant sales effect, especially for a company considered a growth story.

It is difficult to comprehend how investors basically ignored this decline in 1st quarter sales and have bid up the price of GoPro shares to levels as high as double the IPO price of $24 per share even without considering the gift of the 60 Minutes segment. In my view the first quarter sales decline is the red flag that may indicate that GoPro is more likely to become a niche camera manufacturer, based on a passing fad, than the blockbuster media company it strives to be. With the shares valued for perfection, caution is in order.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. These are the personal views of Wall Street Titan and should not be used for your investment decisions. All investors should always do their own due diligence.