GoPro Inc (NASDAQ: GPRO)’s Quest To Become A Media Company

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By Mark Michaels on August 4, 2014 Consumer Staples, Technology & Software

We’ve all heard GoPro Inc (NASDAQ: GPRO)’s story before – just because they get nearly all of their revenue from hardware and product sales and almost none from their video content, doesn’t mean that they are not primarily a media company.

Or does it?

GoPro has established a name for itself by selling tiny cameras that can record point of view footage from athletes or extreme sport enthusiasts. It is understandable to think of GoPro as a camera company that specializes in selling camera and video hardware. However, the company insists otherwise – that it is a media company.

Being a media company means that GoPro will bring most of its revenue from monetization of its content. In fact, one of the key reasons for the incredible rise of GoPro’s stock is the assumption and hope that the company will start to create gradual revenue off of its customers’ videos. The company already has a powerful social media influence, so this task doesnt seem too difficult.

Alex Guana, a senior analyst at JMP Securities, said on Thursday that it is difficult to estimate GoPro’s value in terms of media content and monetization. They believe that the business has a $50 billion opportunity in internet advertising this year. The business model, as it is today, is able to reach $1 billion in revenue by monetizing the content they already have created.

During the investor call, GoPro spoke regarding future investments to drive media revenue. The company is primarily focused on improving the ability for users to capture, manage, create, and share the engaging and personal content. By doing this, the company is naturally growing the pool of human experiences that they can gather and redistribute as GoPro’s content. Thus, the company’s top priority is to build out its media distribution before it begins to monetize it. By expanding into different platforms and enabling mass viewership of the content on YouTube, Xbox, and other distribution platforms, GoPro can benefit from more enthusiastic awareness and adoption of GoPro. This would then lead to even more content created by users that the company can gather and redistribute, and later on can monetize.

Nick Woodman, the CEO of GoPro, stated the metrics about GoPro. The company experienced a 200% year over year increase in views of YouTube videos, which will drive the cycle of content leading to sales.

Analysts and investors will probably criticize Woodman for this response. However, if the company is trying to get customers and followers and generating content, then they are doing phenomenally.

The company’s video editing software for computers, GoPro Studio, got more than 850,000 installs in the second quarter. The GoPro app enables users to store and share videos from their smartphone, and was downloaded more than 1.6 million unique times, and 8 million cumulative times. The company has 2 million subscribers on YouTube, 1 million followers on Twitter, and 2 million followers on Instagram.

After having release its IPO just a month ago, GoPro has been taking extra steps to engage viewers and customers. They launched a GoPro channel on Pinterest and a channel on Xbox One with exclusive GoPro videos in July. In this past quarter, they also debuted the GoPro channel on Xbox 360, which yielded over 500,000 downloads and an average engagement time of 30 minutes in the United States. One of the most important highlights of the second quarter is the launch of the GoPro App 2.5, which enables users to stream GoPro playlists directly to their smartphones and tablets. This app could generate enormous amounts of revenue in the future if the company were to display targeted ads with these videos.

Units and Margins

During the second quarter, GoPro delivered shipments of 854,000 units,which was a small increase from the first quarter’s figure of 852,000 units. However, the figures from this quarter are a huge increase from the second quarter of 2013, where the company posted shipments of only 653,000 units. This jump means that over the course of the last two years, the number of units shipped in the first of the year make up 42% of the year’s total units shipped. If you project that number out for the rest of this year, you would get 4,062 units shipped, or a 6% year over year growth.

However, if you consider the data from the quarterly growth rates from 2012 to 2013, and project that rate for the rest of this year, GoPro should have a 49% year over year growth rate. This, however, is extremely unrealistic, because it would mean that the company will experience a 145% growth in the third quarter.

Next, if we look at the growth rate over the year of the total shipments since 2011, we see an 84% growth rate year over year. For that to be sustainable this year, GoPro must sell 5.3 million units by the end of this year – another unreasonable expectation. Ideally, GoPro should expect to sell 4.75 million units by the end of 2014.

Additonally, the company reported second quarter GAAP losses of $19.8 million, and adjusted non-GAAP earnings of $11.7 million. This adjustment was based on total stock compensation, disregard of intangible assets related to acquisitions, and income tax adjustments. It is important to note that the stock based compensation accounted for 92% of the difference between earnings.

At the end, let’s not forget about the employees at GoPro Inc. The headcount of staff rose 8% from the first quarter of 2014. GoPro is also currently hiring, with 80 open positions. This increased need for staff hints at the company’s expectations for a rise in demand and growth. Many of these positions are media and marketing positions, such as Director of Advertising. This suggests that the company is looking for talent to help monetize its content.

Overall, the company’s strong earnings have not helped its stock increase significantly in the short term. For those hoping for long term success, you may need to exercise patience as GoPro’s stock drops due to its delay in monetizing content.