Shares of the wearable action camera maker GoPro Inc (NASDAQ:GPRO) took off on Thursday after the company’s 39-year-old CEO Nick Woodman said GoPro would start selling drones and virtual reality products by 2016.
GPRO stock, which hasn’t even been publicly traded for a full year yet, tacked on as much as 8% on the news as analysts scurried to weigh in on the value of the cutting-edge opportunities.
There’s no telling exactly how big these new markets can be, but the fact is they could be very large. Yesterday, I was decidedly neutral on GRPO stock. Today, I think it’s an obvious buy … and am considering picking up a few shares myself.
GoPro’s Momentum Days Aren’t Over
If you’ve followed the stock market even casually over the last year, you’ve heard of GoPro stock. The GPRO IPO price of $24 per share was quickly forgotten, and the stock ripped off 310% gains in less than four months, peaking at nearly $100 per share.
Then the euphoria wore off: The company announced a secondary offering of GPRO stock at $75 per share, Apple Inc. (NASDAQ:AAPL) filed a patent that some believed could foreshadow a GoPro killer, and the company’s COO unexpectedly left in February. By mid-March, GPRO stock was hovering around $40 a pop.
But after today’s announcement of a GoPro drone and virtual reality system, GoPro’s momentum days are back. I think shares could easily break the $70 level within a year. Why? Consider some of the comments from Daugherty analyst Chris Anderson, who slapped GPRO stock with a “conservative” $65 price target.
“In terms of the potential impact, we note that leading consumer quadcopter drone-maker DJI (of China) is expected to sell over $1B of product in 2015 (roughly double 2014 revenue). If we assume DJI will have 80% market share this year and that the market will grow 50% in 2016, the addressable market is about $1.9B in 2016.”
So drones will be a $1.9 billion market next year — an entirely new $1.9 billion market for GoPro. Anderson expects GPRO to capture about 25% market share next year, or roughly $500 million in additional revenues. For context, GoPro revenue clocked in at $1.39 billion last year.
While Anderson expects other competitors like Garmin Ltd. (NASDAQ:GRMN) to enter the area as well, the market for consumer drones could actually grow more quickly than expected, as GoPro’s viral presence (the company has a share-happy, engaged audience on both YouTube and Instagram) could “act as a multiplier for demand.”
But wait — there’s more.
The $65 Billion Virtual Reality Opportunity
GPRO is also getting into virtual reality with a six-camera spherical array expected to fetch between $500 and $1,500. The product will use GoPro HERO4 cameras, and could be available by the end of 2015 (holiday season, anyone?).
Virtual reality may sound like too far-fetched an idea to go mainstream, but Wall Street disagrees. Piper Jaffray expects VR to be a $65 billion market by 2025.
Silicon Valley disagrees, too. GoPro’s Woodman said that when he saw Facebook Inc (NASDAQ:FB) acquire Oculus VR for $2 billion early last year, a light went off:
“We recognized that we were really well-positioned to take some of the development we’ve done over the last few years and actually commercialize it.”
Lucky them, huh? GoPro tripped and fell into an emerging market on its way to being worth $65 billion.
Any way you cut it, the move into VR and the decision to make GoPro drones is decidedly bullish. I expect the hype alone to be a powerful near-term catalyst for GPRO stock, but if the company can become a leader in these two markets to boot, the longer-term prospects are simply too lucrative to pass up on.
Congrats, GPRO. You’re a “buy” once again.
As of this writing John Divine owns shares of AAPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
