Take A Wild Ride With GoPro Inc (NASDAQ:GPRO)

Within two months of releasing its initial public offering, GoPro Inc (NASDAQ: GPRO)’s stock has taken investors and shareholders on a wild ride.

Within the first couple days of public trading, the camera maker’s shares rose by 55 percent. The stock saw no end to its growth until early July, when the price of the stock fell by 10 percent over the following two weeks. At the end of the month, the stock shot up again by 23 percent. Since then, the stock has fallen again by 8.6 percent.

Just a few weeks ago GoPro reported its quarterly results, which were better than the estimates by analysts. However, since then its shares have decreased by 7.2 percent. If things continue going the way they are for the camera manufacturer, the company doesn’t look like an appealing investment.

Second Quarter Performance

GoPro posted year over year increase of 38 percent in revenues to $244.6 million. This beat out anaylsts’ expectations of $238.1 million. It shipments increased by 30.8 percent to 854,000 units. According to the company, it was positively affected by the increase in demand of its products and also the strengthening of its relationships with larger distributors.

The company’s net loss swelled from $5.1 million one year ago in 2013, to $19.8 million in the second quarter of 2014. Excluding the effects of one off times, the adjusted metrics come out to be a profit of $11.8 million, which is a huge improvement from the loss of $3.2 million one year ago.

The profit margin of GoPro increased from 32.1 percent in 2013 to 42.1 percent in the second quarter of 2014.

For the third quarter, GoPro predicted revenues to reach between $255 million and $265 billion, and earnings per share to hit between $0.06 and $0.08 per share.

Market Share

GoPro’s most powerful asset are its dominant brand and its share of the market. According to estimates from the IDC, the company holds over 30 percent of the video camera market, and more than 47 percent of the action camera markets. This means that GoPro is far ahead of its closest competitor, Sony (NYSE:SNE), who hold only 21 percent of the market for video cameras and just 6.5 percent of the market for action cameras.

However, GoPro may find it difficult to hold onto its lead in the market. The camera maker currently only has one core product, the Hero 3+. It’s second camera, the Hero 4+, is currently in development. The growing competition from other camera makers, like Polaroid and its cube cameras, as well as competition from technology moguls like Google (NASDAQ:GOOG) (NASDAQ:GOOGL), Apple Inc (NASDAQ:AAPL), and Samsung (OTC:SSNLF) make it especially difficult for GoPro to retain its dominant position.

The Quest To Become A Media Company

GoPro has been constantly claiming to be something that it is not – a media company. However, it does have the opportunity to become one, given the vast collection of user generated videos and GoPro sponsored content.

In their most recent report, the company stated that they had seen an increase of 160 percent in the number of GoPro videos, and an increase of 200 percent in the number of views of its videos on Youtube.

Additionally, GoPro has released its own channel on Xbox One and Xbox 360, as well as a channel on Virgin America’s flights.

With a growing collection of video content, GoPro has a significant opportunity at its feet to earn money from ads, and sponsorship and distribution deals. According to individuals familiar with the company, GoPro may start licensing its video content soon.

However, it will be a while before these licensing deals will generate enough revenue to have any significant impact on the company’s bottom line. The company even announced that the revenues from its media content will not be meaningful to the company in 2014.

Another troubling fact is that despite the loyal and large customer base and huge growth rates on Youtube, the company’s channel has only 2.16 million subscribers. If the company hopes to get up to the ranks of the top 100 Youtube channels, it will need to have at least 5 million subscribers, more than double of its current user base.

Conclusion

For now, GoPro does not have its plans as a media company come to fruition yet. While the company leads the market, it has a tiny product portfolio. Increasing competition from bigger rivals will make it difficult for GoPro to maintain its current leading position in the market.

In terms of media, the company certainly has the capability to become a media company. However, it is not at that point yet.