Since initiating my short position based on a technical undersupply of shares, I have heard many GoPro (NASDAQ:GPRO) bulls telling me how I simply don't get the company and how this stock is poised to get to $100 in the next few weeks (no reasonable work here, just blind optimism).
One commenter on Twitter even likened me to the guy who poo-pooed Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG) (NASDAQ:GOOGL), Facebook (NASDAQ:FB) and Netflix (NASDAQ:NFLX) as if GoPro is even in the same category of innovation.
While it is conceivable that GoPro could continue its terrific sales run (the prospectus doesn't point to this but a variety of social metrics that I use do) I feel it would save me and other non-believers plenty of time by explaining how all of these tech darlings have really little similarity to GoPro. Of course, I'd love to share with you my social data but some are readily available (Google Trends) and others I am not allowed to publicly replicate (Alexa, Topsy).
So, Why GoPro isn't...
1) Tesla (NASDAQ:TSLA)
First off, how many people in the world will own a car but won't own a GoPro? I haven't done the numbers but the answer seems blindingly obvious. Tesla firstly has a much larger addressable market than GoPro does (this is the same for most of the companies you will read about). Therefore, peak earnings will always be greater than Tesla.
No brainer out of the way, the technology that Tesla employs is an innovation and not easily replicable. The Tesla line up of cars is a giant leap forward for electric vehicles and lays the foundations of a world full of green cars (the market size is north of 1 billion units). The second best electric vehicle does a fraction of the distance that a Tesla can do and is still rather expensive to make.
Boiling GoPro down most bulls have to accept what GoPro actually is. Repackaged technology that was available 10 years ago, with an innovative brand. We are arguing over the value of this brand and the market in which it operates but at the end of the day, this is what GoPro currently is.
A global social media monopoly with north of 1 billion users capturing its user base through the network effect and the significant footprint each user has created over the years of involvement (pictures etc). The barriers to entry here are insurmountable as Google found out and this database is to a degree priceless. Considering GoPro is already being challenged by a number of low cost alternatives, is this really a comparison?
3) Apple (NASDAQ:AAPL)
You can see why bulls choose Apple, after all they make hardware, GoPro makes hardware, both are brands...they must be equal right?
Let's just put aside the captive OS software that blows the argument out of the water for one second... Apple was one of the first companies to make a mass storage MP3 in the iPod and although the hardware saw imitations from the beginning, the software and ease of use was outstanding.
The iPhone was the first real smartphone and had a first mover advantage for a good four years (of course the software helped capture and retain customers).
Bulls may argue that ''The iPhone wasn't an innovation, there were phones before!'', but let's be serious, when the iPhone came out, it truly was a unique amalgamation of the most useful devices.
I think the bulls may have a point when it comes to the iPad, but we have all seen how quickly their market has been filled with machines of equal quality and if the software wasn't captive, who knows how many iPads would actually sell.
Before we move on, let's just look at the total addressable market here. How many people have phones? Smartphone sales topped 1 billion per year last year. Somehow I don't think the action camera will reach these heady heights.
Let's be serious...
5) Under Armour (NYSE:UA)
One person told me that like GoPro, Under Armour was uninnovative and used a strong brand to build significant growth. This is something I am inclined to agree with but once more, I don't think this is a comparison...
Quite a few people play sports, less in general take part in extreme sports. Furthermore, Under Armour is a type of fashion and people will pay the premium in the same way that those who go clubbing may pay up for the finest threads from Prada.
Although GoPro will definitely enjoy a degree of "Mommy! I want a GoPro, if my friends see me with a Kontour, they'll bully me," I don't think GoPro relies on the fashion element as much as a brand like Under Armour.
Still, once again, UA wins with a much larger TAM
This list will cover the ridiculous nature of comparison for the time being but I'm sure that I will still hear some bulls deciding to avoid a real valuation exercise and simply claiming, if this company is worth $20bn, why can't GoPro? Next stop $100!!
Updating you all on my short, I will probably look to close it in the next two weeks as there is definitely a chance for GoPro to continue with strong growth in the near term and as you all know, the market can stay irrational more than you can stay solvent; well, either that or I got my sums wrong!
Disclosure: The author is short GPRO. 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.