I’m Bullish on GoPro Stock; Here’s Why
These are undeniably rough times for GoPro, Inc. (NASDAQ:GPRO), with GPRO stock losing half its value. Various analysts are predicting the company will crash and burn like BlackBerry.
The basic argument is that GoPro lacks a competitive moat to prevent rivals from easily entering into direct competition with it, which will steadily erode its market share and cause the company to go belly-up. (Source: Barrons, last accessed October 1, 2015.) Many such companies have risen and fallen, the most famous of which was BlackBerry.
But by painting GoPro with the one-hot wonder brush, analysts could be undervaluing this stock for two reasons. Let me explain.
Here’s Why GoPro Stock is Undervalued
One is the company’s brand value, and the other is its specific niche use. Neither advantage is particularly special on its own, but taken together, it just might prove to be the winning combination that will not only keep GoPro alive but in fact cause its stock price to rally.
Now, before going further with this analysis, it’s important to outline what the company’s business model is.
GoPro makes wearable and mountable cameras and related accessories, referring to them as “capture devices.” But it also develops mobile programs and media editing software. (Source: Bloomberg, last accessed October 1, 2015.)
But let’s turn back to the argument that there is no moat to competing directly with GoPro. While this might be true from a purely technical perspective, it ignores the characteristic behaviors of consumers in this market. GoPro has an extremely high brand value as the purveyor of status items, which plays a critical role in its success.
There is the instant popular connection between the company name and its primary product. Indeed, the name GoPro is now synonymous with rugged digital cameras, to the point where you don’t simply want a durable camera; you want a GoPro. This is a vital aspect of consumer behavior which often goes ignored by analysts, and has been the key to success for many companies.
Take, for example, the rise of the iPod. It’s a given that there was a variety of similar products on the market when Apple’s music player hit stores, with some even performing better in certain aspects. But didn’t consumers simply want an mp3 player? No; what they really wanted was an iPod. Similarly, I believe that what customers are looking for is not just a heavy-duty camera they can take anywhere that takes high quality photos, but all that in a GoPro.
I know it sounds counterintuitive, but that’s the simple reality of today’s markets. It’s these intangible values that are difficult to quantify that cause some analysts to underestimate companies like GoPro.
What helped Apple’s rise was the arguable superiority of iOS software and the tie-in ecosystem the company provided through iTunes. Further developing those sorts of value-added software and networks will be the key to GoPro building competitive moats if it wants to survive.
The challenge for GoPro will be maintaining that level of brand value and proving the company is not another fad-driven device or one-hit wonder.
What About Competitors?
The popular thinking goes that as the rugged camera market gains popularity and users, other electronics manufacturers such as Samsung, Apple, and Sony, along with various Chinese copycats, will infringe on GPRO’s market share. (Source: Wall Street Journal, last accessed October 1, 2015.) It sounds reasonable, because in essence, GoPro is simply another camera maker. Most ominously, analysts are pointing out that with the iPhone 6s and Galaxy S6 now carrying 4K video capability, one of GoPro’s advantages has been eliminated. (Source: Smarter Analyst, last accessed October 1, 2015.)
But this is a mistaken assumption. Thinking that smartphones such as Apple’s iPhone will overtake GoPro is ignoring the core value of a GoPro. The company builds rugged cameras, engineered to be used in situations where a person would not want to use their smartphone because of the risk of damage.
Try and picture your average tech-geek using his or her brand new iPhone on a white-water rafting trip.
Here’s the Bottom Line on GoPro Stock
What the smartphone competition argument also ignores is that the inevitable trend of technology is not necessarily always toward aggregation into fewer devices. Not all technological developments are destined to be funneled towards our phones, after all. Consumers often want differentiation of capabilities across various devices, for many different reasons.