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Go Pro (NASDAQ: GPRO) has had its fair share of struggles since becoming a state-owned company in 2014. The company has failed to get into the media, crashed into the drone market, and was unable to to turn 360 degree video cameras into a meaningful business.
Along the way, the company has run into issues with inventory, pricing and, of course, constantly improving cameras that are in our pockets every day in smartphones. But GoPro appears to have found a niche it can win in and continues to gradually improve its product, as we see with the HERO10 Black camera announced this week. But does that make it a decent stock to own in the long run?
Image source: GoPro.
GoPro finds its way
You can see from the graph below that GoPro’s revenue has tended to decline over the past four years, but the company’s net income has steadily increased. The simple reason is that GoPro has stopped trying to grow at all costs and is focusing on growing in those niches where it can pay off.
GPRO Revenue Data (TTM) by YCharts
Not only are the margins on the cameras improving as GoPro entices customers to buy direct, the company is also now adding subscription services that can be sold at a high margin. Cloud storage, editing tools, and even upgraded accessories have made subscription products appealing to power GoPro users.
As great as this transformation of the company has been, it has its limits. If GoPro cannot increase sales volume and revenue, it will have limits on the amount of money it can make. And with stocks trading at 29 times earnings, it’s not exactly a value stock today if the company is contracting.
Where can GoPro grow?
GoPro has found a niche it can make money in, but as a public company with a 29x P / E ratio it needs to find ways to grow. We know the media business has failed, drones haven’t worked, and 360-degree cameras aren’t a big market given the competition in space.
A natural fit could be wearable clothing, especially wearable eyeglasses. Break (NYSE: SNAP) and Facebook (NASDAQ: FB) have already advertised glasses with cameras, but they are trying to link them to their own social networks. GoPro could be an independent eyewear / camera company from content distribution. And as a niche provider, it shouldn’t be limited to form factors that suit the masses and could cater for extreme sports.
The beauty of GoPro products has always been the ability to clip them somewhere that cameras usually can’t go in order to capture incredible views. What better place to capture videos and images than from a real person’s point of view?
Speculating on new products may seem futile, but in GoPro’s case, investors need to see a path to growth to be bullish on the stock. And with so many failures in the past, GoPro needs something new to get customers excited, or eventually its cameras will be made obsolete by more versatile devices like smartphones.
Is GoPro a buy today?
The reality today is that GoPro is not a long-term growth stock, and it’s hard to argue that it is of value to investors, even if it is paying off now. I like the shift to more recurring subscription revenues and a general shift to powerful users with higher margins, rather than focusing on volume growth, but there are limits to a business serving a market of. niche.
Where I see fewer opportunities is that GoPro finds a way to expand beyond the HERO action camera line. I think wearables could be a good market, but GoPro has failed to penetrate adjacent markets in the past, so there is no guarantee that it will be successful in a market outside of its current niche.
Until GoPro shows the ability to grow its product line and consistently grow its revenue, this is a stock I will stay out of. There are signs of hope for the company, but not enough to make me optimistic about the title for the long term.
This article represents the opinion of the author, who may disagree with the “official†recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
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