GPRO Is Making Drones to Boost GoPro Stock

While the digital camera industry continues its slide — hammered by the capable shooters built in to smartphones — action camera sales continue to boom. GoPro, Inc. (GPRO) is the undisputed leader in this relatively new category. However, with success comes the competitors, including Sony (SNE), Garmin (GRMN) and Ion.

GPRO could make its own drone to boos GoPro stock
Source: DJI

Many of GPRO’s cameras find their way into aerial drones, and with the world’s largest consumer drone seller — China’s SZ DJI Technology — now offering its own cameras, that market is also under threat. GoPro’s answer to these challenges? According to The Wall Street Journal, the company plans to release its own consumer drones.

Competition Threatens GRPO Growth

GoPro stock is up more than 208% from its June IPO, largely because of GPRO’s growth trajectory.

As pointed out in a 2013 Forbes feature on GoPro founder Nick Woodman, GPRO sales of action cameras more than doubled every year since the first was released in 2004. At this point, GoPro products like the Hero line account for more than 40% of global action camera sales.

But this level of growth is difficult to sustain, especially in a relatively niche market. Having consumer electronics and digital camera giants like Sony come after you doesn’t make things any easier.

The news that China’s DJI — the leader in consumer drones — was releasing a new model (the Inspire 1) that includes its own built-in, 4K-capable action camera instead of the traditional mount for a GoPro is more bad news.

Footage from helmet and drone-mounted GPRO cameras has made GoPro the top brand channel on Google’s (GOOG) YouTube, with an estimated 6,000 videos shot on GoPro cameras hitting the video sharing site every day.

That popularity is a key element in inspiring consumers to buy GoPro cameras. It’s also key to GoPro’s aspiration to becoming a media empire built on extreme footage shot with its cameras.

The question is, with the prospect of an increasing number of action camera videos being tagged with “recorded with a DJI Aspire” or “shot with Sony Action Cam,” does GPRO’s plan to sell its own drones make sense?

Yes, GPRO Needs Another Line of Business and a Way to Fend Off Competitors

Expanding into consumer drones could help GoPro stock maintain its trajectory.

Many of the GoPro cameras being sold today are being mounted on drones and used to take spectacular aerial footage. Drones are big on holiday wish lists this year and GPRO could leverage its brand recognition to quickly become a market leader.

It could also leverage the advantage of its installed user base by selling drones with the option of just the camera mount — letting people use the GoPro camera they already own. This could give a GPRO drone a price advantage over something like the DJI Aspire that has its own built-in camera.

Either way, GoPro needs to protect its presence in the production of those aerial videos, an important part of its media platform aspirations.

Having a second line of business in drones also offers GPRO some insurance against growing competition in the action camera market, making it less reliant on the cameras themselves for revenue.

Sadly, the Consumer Drone Market Is Just Another Niche

High-end consumer drones — the ones that are physically capable of flying with an advanced camera like a GoPro and reaching the heights needed to film the spectacular aerial footage so popular on YouTube — are even more of niche product than action cameras.

These drones are expensive, with many costing $500 to $1,000 and up. The market for the devices is limited by the number of people willing to spend that kind of cash on what amounts to a hobby.

In addition, the laws and regulations around consumer drones have been very loose, but with more of them in the sky and an increasing number of close calls with jets, people and property, pressure is on the FAA to step in with strict rules on operation.

Slate’s Seth Stevenson reviewed a DJI Phantom consumer drone, and as a result of his experience has serious concerns about the devices. He writes:

“We are impatient. We do dumb stuff…Which — given that these things weigh as much as a steam iron, soar through the skies at 30 mph, and have whirring propellers just hankering to slice through somebody’s cornea — suggests that maybe there ought to be some regulations out there to protect us from ourselves.”

Cost and the prospect of regulation will help to keep consumer drones as a niche market, and considering the R&D, production and marketing costs GoPro would incur, it doesn’t make much sense for GPRO to invest in this strategy. It would be better off negotiating with existing Drone leaders to keep GoPro camera mounts as the de facto standard on their products.

About the only sure thing with the action camera business is that, unlike point-and-shoot cameras, it’s under no threat from smartphones. Consumers may prefer their Apple (AAPL) iPhone to carrying a Sony Cyber-shot camera, but are not about to strap their iPhone to a drone or risk destroying it by mounting it on a helmet while surfing.

However, now that GPRO has popularized the action camera category, competition is heating up and without doing something, it faces the prospect of a smaller share of a limited market. And if its content lead is diluted by other action cameras, that also threatens the company’s media platform plans. GoPro stock is likely to reflect that fact sooner rather than later. Entering the consumer drone market to expand its product line while fending off drone makers who would like to shut its cameras out is one response. Time will tell if it’s the right one.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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