GoPro is undoubtedly an exciting brand. As the company behind HD action-sports cameras, techies and adrenaline junkies alike have gone ga-ga for GoPro videos on Google (GOOG) property YouTube that show epic skydiving feats, BMX’ers backflipping over canyons — even the cameras themselves getting eaten by grizzly bears.
But with a GoPro IPO on the horizon, the focus should be moving away from the fantastic films captured on this gadget to the true profit potential of the company itself.
And sadly, GoPro isn’t camera-ready on that front.
Here are the IPO details: GoPro plans to issue 17.8 million shares at a range of $21-$24. The GoPro stock ticker will be GPRO, and the company will be valued around $3 billion to $4 billion if that pricing range holds.
Along with these logistics of the initial public offering itself, however, GoPro has had to file documents with the SEC that show details about its operations.
Here’s where the real problems lie.
In the GoPro IPO S-1 filings that show recent performance, the company reported a disturbing drop in its net income last quarter — driven by the fact that GoPro revenue was half what it was in the same quarter of fiscal 2013.
Sure, there was significant revenue growth across full-year 2013 over 2012 at GoPro, and this could simply be one anomolous quarter. However, revenue growth continues to dramatically outpace profits, with sales up 87% but gross profit up less than 60%.
How come? Well, because like many startups, GoPro is doing its best to spin up brand appeal and commercial relationships as fast as possible. This will keep it ahead of larger and more connected competitors, but also comes at the expense of profits.
In fact, in the GoPro IPO filing, the company admitted this rather bluntly:
“We operate in a highly competitive market and the size and resources of some of our competitors may allow them to compete more effectively than we can, which could result in a loss of our market share and a decrease in our revenue and profitability.”
There’s no denying that GoPro videos are fascinating and exciting to watch.
But given the real risk factor and pressure on revenue that this company faces, I wouldn’t be overeager to snap up GPRO stock right out of the gate after the GoPro IPO.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via@JeffReevesIP.