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GoPro: Better As A Private Company?

|About: GoPro (GPRO), Includes: AAPL, FB, GOOG

Summary

Small, innovative tech firms feel a lot of shareholder pressure which limits growth.

GoPro would operate and innovate better if it was taken private by a larger institution.

GoPro currently offers a fair valuation and a lot of synergies to its acquirer.

There has been a lot of rumors about GoPro (NASDAQ:GPRO) stock being too cheap (especially after the recent dip on disappointing earnings) and it should be an acquisition target. We completely agree with this expectation as we think GoPro would be so much more productive and efficient as a private subsidy. Company's like GoPro who stand out with their innovation, technology and consumer awareness but can't produce impressive financials to satisfy shareholders generally get hurt in a market like this. There is a lot of options to invest in and companies like GoPro can't do well enough financially to draw that capital in at times. Companies like this would be better off on their own and realize profits or contribute to a larger ecosystem with their talent team and innovation. Imagine if Nest or Waze weren't part of Google but had an IPO or how successful would Beats Music would be without Apple. Would they be able to flow large amounts of money to their business? I don't think so, they are much better off utilizing their talent for Google or Apple and contributing to that ecosystem. Some recent candidates suggested by the news, reported by Mergerize, to acquire GoPro were Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN) and of course Apple (NASDAQ:AAPL) (see below for prediction reports from Mergerize). These companies all seem like a bad fit for me. Google has their eye on more futuristic projects and doesn't really a camera business in their portfolio right now, Amazon is probably perfectly happy with selling the GoPro and although the company seems exactly like Beats (premium hardware, social media initiatives) Apple is perfectly happy with providing the best cameras possible on their smartphones and probably won't see the acquisition of talent (who also have deep industry connections) in GoPro. Since GoPro wouldn't take itself private after a very recent IPO, my expectation is that it will still be acquired by a large ecosystem company that is not predicted yet.

ALL POTENTIAL ACQUIRERS
TOTAL ACQUIRERS9 TOTAL PREDICTIONS16 PERCENTAGE AVERAGE PRICE$8.47B PREDICTED TIME FRAME
Apple 9 predictions 56% $8.78B Mar 2016
Amazon 2 predictions 13% $11.5B Jan 2015
Google 3 predictions 19% $7.33B May 2015
Sony Corp 1 prediction 6% $3B Sep 2015

Valuation

First of all it is a big plus that almost all large techs firm have a very healthy cash balance. Even Amazon, known for turning loses and spending too much, has a great cash generation machine that can supply acquisitions. These huge cash hoards are needed to make an acquisition of GoPro's size and then invest in it. GoPro's market valuation is at around $2.5 billion right now compared to around $8.5 billion this time last year. Even if the acquirer pays a huge premium for the company (around %80) for a company it would end up to be around $4.5 billion. The company, although an innovative one with a lot of future prospects, trades at a low P/E of 21. GoPro lost an incredible %20 of its value just in the month of October while the overall market gained 8.3%. That is an opportunity. Our candidate for this task is Facebook (NASDAQ:FB).

Reasons and Synergies

Facebook is a great suitor for GoPro's acquisition for many reasons:

- The company has $15.83 billion in cash and equivalents as of last quarter. Facebook likes spending its cash and is good at it. They have also became really experienced and good at acquiring a company and then making it better and more useful for the Facebook ecosystem.

- GoPro wants to increase its social media footprint and build a media sharing platform for their cameras. Nobody builds or enhances a social media platform better than Facebook as we have seen with Instagram and Whatsapp. Everyone's asking for more social media capabilities on the pro camera anyway, so we know there is demand.

- Facebook could gain a consumer product division with this acquisition. The company is dominant in the mobile space but hasn't get their hands on the hardware really well. Oculus is not that entry to the hardware market for a few more years.

- Facebook is putting a lot of effort into making Virtual Reality come to life with Oculus. Oculus will offer a virtual reality headset but how about using GoPro to create a VR camera that people can shoot with and create their own VR content?

- Finally Facebook is all about photos with its own social media platform and Instagram. These can integrate very well with a camera builder, especially Instagram and GoPro cameras can offer a lot of synergy. A special Instagram camera can be a huge seller with built in photo filters and adjustment options built right onto the camera itself. Instagram and GoPro names together can create a huge blockbuster product

- They have the cash for it and the company is dead cheap considering a year ago. That is an opportunity for Facebook's growth and diversification

Result

GoPro lost about $5 billion worth of market valuation from its peak a year ago and the stock is trading very cheaply. The negative earnings reports and shareholder pressure is holding the stock down which can suggest it can do way better if it was taken private by a bigger company. We think Facebook is a great suitor for the company as:

-They have the cash/cash flow to do it.

-A lot of synergies exist between the two companies.

-Facebook can have its entry to the consumer market with this acquisition.

-GoPro would operate and innovate better at Facebook's hands. Nobody does "acquire and innovate" better than Facebook.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Above mentioned is not an expectation but a reasoned prediction. I have no contact with either companies and have no idea about the possibility of such acquisition