Xiaomi: 'Camera, Action'
Summary
- Xiaomi has been a pain in GoPro's side, but now rumors of a potential GoPro buyout have recently begun circulating.
- Known as the low-cost producer, Xiaomi produces quality cameras that retail for half the price of GoPro's.
- An IPO is due in the second half of 2018, and these aggressive moves show that Xiaomi is not holding back.
- GoPro CEO Nick Woodman has stated that he is open to a buyout and this may be the last chance.
On April 12, rumors began circulating that Xiaomi (XI) was interested in acquiring action-camera producer GoPro (NASDAQ:GPRO). Considering that Xiaomi already has an action-camera brand that is cheaper, and in some aspects, better than GoPro, is it realistic that an acquisition is on the horizon? Especially with an IPO in the near future, Xiaomi cannot be careless with its cash.
GoPro News
Shares of GoPro popped on the news of Xiaomi's interest, but overall the company is a far cry from its early days. On Wednesday, shares closed at $5.22, up 7.19% from Tuesday's close, but down 30% YTD.
At this close, GoPro is valued at $763 million. Reports have compared this deal to a deal made by Hewlett Packard (HPE) to buy a company called Palm. Based on this deal, GoPro may be valued as much as $1 billion, but this is unlikely. While Xiaomi has confirmed the interest, they have not mentioned anything close to a deal. The main reason being that the company wants to be sure not to overpay for the camera company.
Cameras
Given that Xiaomi has its own line of wearable cameras, why is there interest in GoPro? Shown in the table below, Xiaomi's Yi action camera beats the HERO is most categories... and is half the cost ($64).
Source: TechJuice
Xiaomi has become a major competitor for GoPro since its release in 2015. While the Yi was not initially rolled out in the US, where about 50% of GoPro's market is, it caused a roadblock in GoPro's international expansion.
There is a clear cosmetic difference between the two cameras as well. This is due to a cultural difference. If purchased, the GoPro cameras' design may help Xiaomi expand into some markets where a more 'professional' look is desired.
Looking For a Deal
Xiaomi's interest in GoPro is more than likely part of a bigger agenda than just cameras. Yes, GoPro is the leading wearable camera manufacturer in the US and has massive brand recognition. However, Xiaomi is planning a large expansion, not only domestically in China but also internationally. Adding a well-known company, especially in America, to the portfolio would be major help in expanding outside of China. Not to mention that the acquisition would eliminate one of, if not 'the', largest competitor in the market.
Source: Macrotrends
On the other hand, GoPro CEO Nick Woodman has stated that he is open to buyout deals. GoPro has seen its market cap disintegrate over the years. Just over 3 years ago, GoPro was valued at more than $11 billion. As mentioned earlier, it now sits at under $1 billion. Xiaomi can leverage this and get a good deal on the purchase of GoPro.
The major problem arises in the revenue trends for GoPro. Since 2015, the company has seen all but one of its markets decline. In the 'Americas' market, the US represents $528 million of the $591 million in 2017. As I have stated before, I believe this reliance on the US is the reason that Xiaomi is eyeing GoPro.
Source: 10-K
The major advantage that Xiaomi has over GoPro, and most of its competitors for that matter, is that they price their products low. Xiaomi operates with thin margins in order to provide a competitive advantage of great quality for a great price. If Xiaomi acquires GoPro, it can adapt this strategy to decrease prices, which would lower margins, and boost sales to more people. The key is that GoPro cannot implement this strategy on its own. The company is currently losing money and cannot afford to lower margins. Xiaomi, on the other hand, is generating profits with thinner margins and lower prices.
Conclusion
Despite a lack of public details, the rumors of a GoPro acquisition by Xiaomi show some light on a potential strategy for international expansion. Buying the American camera company expands Xiaomi into an already established market and consumer base. If an IPO comes to fruition this year, then this is a positive sign for investors as it shows that management is aggressively pursuing growth and diversifying its product reliance away from majority smartphones.
While GoPro is not the best company on the market by any means, it is certainly one of the best and most popular wearable camera competitors. Given that there is strong evidence showing a promising future for wearable technology (this includes cameras), with the likes of FOX sports hinting their refs may start wearing GoPros, this may be a smart buy for the Chinese company.
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