GPRO has been mentioned a few times on this board. The stock flew after its IPO but has lately been crushed back to near the IPO level. There’s a fair bit of scepticism … and I was wondering if this might be an opportunity to take a position. It reported FY 14 results not too long ago. See the release here:
Here’s a quick summary of the 2014 non-GAAP numbers:
o Gross margin of 45.1%, compared to 36.9% in 2013
o Operating income of $259.6 million, or 18.6% of revenue, an increase of $148.9 million year-over-year
o Adjusted EBITDA of $293.4 million, or 21.0% of revenue, up 119.4% year-over-year
o Earnings per diluted share of $1.32, up 164.0% from 2013
Those look like outstanding numbers. Who doesn’t like 150%+ earnings growth? With trailing non-GAAP eps of $1.32 and a stock price around $40, we get a trailing PE of 30. In my quick look, I didn’t find anything on Q1 2015 guidance, so may be their guidance is weak but still I would think they would be able to grow earnings at 50% rate or so, given what they have achieved in the recent past. So, I need to look more into this.
On a related note, I also found a post by NYU business professor Damodaran. He’s more of a value investor but his posts are very interesting. He studied GoPro in Oct 2014. His post his here:
One of the things he noted in his post is how GPRO was (then) being valued as a social media company. While it’s possible that the company will transform into a media giant, I still don’t see the path to that happening. Anyways, Damodaran thought that the stock was more or less fairly valued in the mid $30’s, and today we are getting to that point. He sees the company more as a ‘action camera’ seller not as a social media company. Anyways, his post is always interesting to read.
I have my doubts on GPRO. I just can’t see a very narrowly focused electronics company having any form of moat. Proponents often point to the staying power of Apple but I 'm not sure if GPRO exhibits the hardware/software finesse of Apple products. And, I do think that the smartphones will just become more and more capable over time, and they will start providing ‘action camera’ capabilities in the near future. What else will iPhone 8 have? We already see movement in this direction. The new iPhone supports 120 fps recording. The iPhone 6 supported 60fps recording. So, over time, camera improvements are bound to happen and why carry an additional piece of bulky hardware when you can strap on your phone and get similar results. Anyways, that’s my bear case but from a pure numbers point of view, GPRO looks enticing.
Has anyone looked into this in any detail? Any thoughts?