Why GoPro Inc (NASDAQ: GPRO) Is Incredibly Overvalued

The main reason for GoPro Inc (NASDAQ: GPRO)’s incredible rise in value is the hype that the media stirred up.

GoPro did not present itself as a firm that sells inexpensive cameras that are perfect for capturing the point of view footage of stunts that athletes and extreme adventure and sport enthusiasts do. No – GoPro has rather marketed itself as a media platform. The consumer products that it sells are the secondary driver of the company’s profits and growth. By doing this, it pricked the interest of Wall Street analysts and investors. Had it done otherwise, the company would have been written off as having a poor business model, because GoPro’s products do not yield recurring profits. Meaning that once you sell a GoPro camera to a customer, that is the most profit you will ever make off him or her.

The camera space is not particularly giving either. It takes a great deal of innovation and branding to convince the customer to buy a new camera. Why buy a new one if the old one works just as fine?

Once the market is penetrated completely, the business’s growth will inevitably start to go down. GoPro can draw as many parallels as it wants to Apple’s iPod, but it still does not give the company the hype and valuation that it deserves today. The hype is rooted in the possibility of monetization of content, and therefore, is the key portion of GoPro’s business that investors should be focusing on.

GoPro’s Content Creation Division

Many consider GoPro to be unlike the other hyped up internet companies because GoPro actually makes a profit. However, its profits are coming from the sale of its products, not its media content. In fact, the company has generated zero revenue from its media content – just like the other hyped up internet companies.

First of all, let’s set GoPro’s claims of media dominance straight. GoPro claims that it has over 1 billion views of videos with GoPro in the title, and is thus a media company. GoPro also claims that there are countless videos that were recorded with a GoPro camera that do not feature the company’s name in the title. While this is a great marketing strategy for the company to have users promote the products on Youtube, this claim is a far stretch even for an exaggeration. There is no way for GoPro to monetize every single video that is recorded with their cameras.

This claim is the same as Nikon claiming that they are a media company just because billions of videos and photos are shot with Nikon products. While GoPro cameras and footage are indeed unique, it does not allow the company to access and turn a profit from the videos. The only videos that the company can make advertisement profits off of are the content videos on GoPro’s website and affiliated sites.

Afterall, GoPro users would not let the company make profits from their own personal videos without charging the company to make some cash for themselves. If their video content is that valuable, GoPro will not be able to obtain it for free. GoPro is certainly not a media company by these aspects.

Comparing GoPro With An Actual Media Company

We can draw similarities between GoPro’s content creation business and AwesomenessTV. AwesomenessTV was acquired one year ago by DreamWorks Animation (NASDAQ: DWA) for $33 million, possibly increasing the price to $117 million by 2015 if certain criteria were fulfilled.

AwesomenessTV is a network with multiple channels that gets Youtube users and personalities to sign up under it. In 2013 when the company was worth $33 million, it had approximately 14 million subscribers, 55,000 channels, and 800 million views on its videos. Now that is a massive amount of content.

Based on the amount of content AwesomenessTV has compared to GoPro, the valuation is extremely low. To compare, GoPro has 2.2 million subscribers, 5 channels, and a total of 537 million views on its channel. GoPro is valued at $5.8 billion.

It seems that the optimism and hype surrounding its potential media business has attributed 80% of the gain from its IPO. So far, the company has increased $2.8 billion in market share since its IPO.

Another fact that points to GoPro’s overvaluation is the fact that AwesomenessTV reported $4.1 million in revenue last year, and $80,000 in gross loss. That means that the internet company is not profitable, even with the backing of Dreamworks behind it. The statistics that AwesomenessTV boasts far exceed those of GoPro, yet the company is still unable to turn a profit even though it is valued at a significantly lower value than GoPro is.

Considering that AwesomenessTV was purchased for $117 million (at the high end), it is clear that GoPro does not deserve the recent $2.8 billion increase in its market cap.

However, GoPro does have strong branding power – the camera company has over 7 million likes on Facebook, while AwesomenessTV has only 144,000 likes. While this shows the power of GoPro’s brand, that is not enough to validate it as a media company, and it is not enough to yield a profit for investors in the future.