Why There’s Still Life Left in This Hot IPO

What I Learned from This Hot IPO's ProspectusOne of the best things you can do to learn about the stock market is to read the prospectus of a company that’s either about to list or recently went public.

It’s a learning experience that, in many cases, can reveal how expensive it is to actually become a publicly traded corporation (i.e. Wall Street’s cut) and that each listing is its own unique security, becoming part of a secondary market after the founders cash out.

GoPro, Inc. (GPRO) out of San Mateo, California recently completed its initial public offering (IPO), selling 17.8 million Class A common shares at $24.00 a share—or 20,475,000 shares if the dealer option is fully exercised.

What wasn’t in the headlines is that 8.9 million of those Class A shares were sold by insiders. And there are also Class B common shares. One share of Class A common stock is entitled to one shareholder vote, but Class B shareholders are entitled to 10 votes per share.

So after its IPO, according to the company’s prospectus, GoPro insiders or selling shareholders will have earned proceeds after underwriter fees of $200,784,000.

The company’s executive officers, directors, and related entities still hold about 73% of total shareholder voting power.

The stock had a great debut and the company is no doubt a growth story. But as an individual investor, your ownership of GoPro shares (if you could get any) in their IPO form is mostly an exercise in the willingness of the marketplace to attribute value to an enterprise not giving up operational control.

This is not uncommon in new listings, and it’s why it’s so informative to read the prospectus of any newly public companies. There is a treasure trove of information in these documents, and it’s a great way to learn about business, a specific company, the stock market, and the power of institutional investors and sell-side investment banks.

The stock market is a secondary market. The founders of a business in a new IPO are cashing in on the marketplace’s willingness to attribute a certain value to their enterprise, and it’s useful to keep this in mind as an individual investor. (See “A Hot Sector of the Market I Feel Will Soon Be a Buy Again.”)

Reading a company’s prospectus is particularly helpful in learning about new technologies and businesses that create a new niche in the marketplace. It’s the best business school reading, as far as I’m concerned.

GoPro was originally incorporated as Woodman Labs Inc. after the company’s founder and chief executive officer, Nicolas Woodman.

The company didn’t reinvent the wheel; it just made existing technology better and more useful for consumers. But competition is fierce in the digital camera world, and GoPro competes directly with the large Japanese and South Korean manufacturers.

The company designs its products in California, but has two contract manufacturers in China that actually produce its products.

And while its “HERO” line of cameras and mounts are the core of the company’s business, it is as much a lifestyle and marketing enterprise as anything else.

While still growing fast, according to its offering prospectus, individual investors will have virtually no say in how the business is run. (And that’s why a prospectus is such a useful document for investors.)

GoPro has seemingly hit the stock market at the appropriate time. Near-term, I’d say the stock still has some upside.