What Will GoPro, Inc. Come Up with Next?
GoPro, Inc. (NASDAQ:GPRO) stock might not look very attractive today as short interest builds up; however, as a company, GoPro has been growing at quite a solid pace and its upcoming drone business could give the GPRO stock price a big boost.
Why? Well, remember The Hunger Games trilogy, Skyfall, and The Dark Knight Rises? They all featured footage captured by drones.
This Could Be the Next Big Thing for GoPro
There is some serious competition in the market for drones. When GoPro launches its camera drones, it’s going to confront the incumbent, Chinese drone maker Dajiang Innovation Technology, also known as DJI. Among the U.S. drones that have been granted a Section 333 Exemption by the Federal Aviation Administration (so drone pilots can operate commercially), more than 42% are manufactured by DJI, while other manufacturers each have a much smaller market share. Goldman Sachs estimated that as the leading manufacturer of drones used commercially, DJI had an estimated 70% market share in 2014. (Source: “GoPro Drone Effort Boosted by Data, But Leader DJI Says it’s Tougher than it Looks,” MarketWatch, last accessed December 2, 2015.)
However, in the consumer market for drones, GoPro is not afraid of the competition. You see, the action camera market is dominated by GoPro and the huge customer base of the company could be a natural fit for drone cameras. Besides, many companies that make drones have been using GoPro cameras on their own quadcopters.
In its original “Phantom” line, DJI supplied customers with a mount for GoPro cameras on the drone. While DJI switched to making its own cameras recently, GoPro is still supplying cameras to drone companies such as 3D Robotics.
The outlook for GoPro in the drone business is so great that Goldman Sachs believes it would make the market bigger. The investment bank estimates that in 2015, the drone market is worth $1.4 billion, but it predicts that the value could more than triple in 2017, because GoPro’s entrance in the business would bring in more consumer users.
There’s no denying that GoPro missed analysts’ expectations in its most recent earnings report. However, growth was still solid: revenue increased 43.0% year-over-year, while adjusted net income surged 103.9% year-over-year to $436.6 million. (Source: “GoPro Announces Third Quarter 2015 Results,” GoPro, Inc., October 28, 2015.)
Also, the company was quite sure about what went wrong in the third quarter and how the company could fix it. GoPro believed that the revenue miss was mostly due to the weak sales figures of the “Hero4 Session” camera. The company said that it was initially priced too high, which led to a price cut. Additionally, the company claims it did not have enough of a marketing budget to boost sales.
In an interview with CNBC, GoPro’s CEO, Nick Woodman, remarked, “If Session had been stronger out of the gates, if we hadn’t mispriced it, and if we had backed it up with the marketing it deserved, I think we would have had a very different earnings call yesterday.” (Source: “GoPro CEO: We Didn’t Market the Hero4 Adequately,” CNBC, last accessed December 2, 2015.)
Woodman also said that GoPro had not used TV advertising for a year, but is now bringing back TV ads in the hope to reach new consumers who may not be aware of the brand.
The Bottom Line on GPRO Stock
If the company’s new marketing strategy successfully boosts sales of GoPro’s cameras, investors might start to notice the value of GPRO stock. Besides, with growth potential in drones and the virtual reality business, GoPro stock’s 16.42X price-to-earnings multiple makes it quite a bargain.