If there was any doubt as to whether or not GoPro Inc (GPRO) was going to try to stage a complete paradigm shift from being just a seller of action cameras to being a media venue that also happens to sell action cameras (as a means to fan the flames of its media ambitions), it was wiped away this week.
The company dropped more than $100 million on a couple of video editing apps that it hopes will make customers’ entire GoPro experience easier.
It’s a smart move in light of GoPro’s new “plan.” The two apps, called Splice and Replay, allow an action camera owner to edit video on a smartphone. In the grand scheme of things, however, Replay and Splice won’t prove to be any real boost to the value of GoPro stock for the same reason a super-cheap price on the Hero 4 didn’t cause any buying stampedes.
That reason is, the number of people interested in filming … well, anything and everything they do just isn’t that big.
Great Product, But Small Market
Just to avoid any confusion (and stave off any irate responses to something I didn’t say), this isn’t to suggest GoPro’s action cameras aren’t the best of breed. They are the device other players in the space are trying to copy. That’s because action cameras like the Hero 4 are truly technological marvels.
That doesn’t mean everybody wants to actually buy one, however.
It’s admittedly a tough idea for some owners of GoPro stock to digest. These cameras were all the rage in 2014, after finally going viral in 2013 when the Hero3+ was launched. And that euphoria infected investors, making GPRO stock a must-have investment after its IPO in mid-2014.
It’s this same euphoria that prevented traders from asking the one key question they should have asked before any other — “How many of these things can the company plausibly sell in the long run?”
Answer: Not enough, relative to the hype.
And don’t think for a minute it’s beyond the realm of possibility. Indeed, it’s quite common, even in this day and age, for investors to be blinded by hype. 3D printers, Chinese stocks and rare-earth metals are just a few of the recent investment fads that ended up burning investors when corporate results didn’t live up to oversized expectations.
Now GoPro’s cameras can be added to the list.
But What About Its Video-Sharing Efforts?
It’s not clear whether GoPro CEO Nick Woodman saw the waning-demand writing on the wall, but even before the IPO the company was looking to become a viewing venue for videos created using GoPro cameras. The viewable content would be created professionally, as well as by amateurs.
That goal has been increasingly better defined in the meantime, and added the much-needed win/win shtick late last year when the company started to offer a respectable amount of money for top-notch, user-generated content. But even then, the revenue model itself remains unclear to owners of GPRO stock, and perhaps even to Nick Woodman.
As recently as the latest SEC filing, the company isn’t actually monetizing all that uploaded content to a meaningful degree. Throw in the fact that Zander Lurie — the executive in charge of the company’s media and content-monetization work — recently left the company, there’s little reason to be excited about the prospect.
And even if Laurie had stuck around, after nearly two years of talking about becoming a media venue, nobody had yet offered a meaningful, plausible answer to the overarching question: “How does GoPro intend to beat YouTube at its own game?”
Alphabet Inc‘s (GOOG, GOOGL) YouTube may not be the best outlet for the high-definition videos shot by amateurs on their GoPro devices. YouTube is by far the biggest outlet, however, making it tough to dethrone.
In that light, the recent addition of the Splice and Replay video editing apps seem a bit anemic.
Bottom Line for GoPro Stock
Again, none of this is to suggest GoPro shares are worthless and that the company has no future. There is a market for action cameras, even if the upgrade cycle is slow. There’s probably a market for user-generated videos filmed with the company’s hardware. There is a need for smartphone-based video editing software. These aren’t “mass market” products and services though … at least not to the extent some would like to believe.
GPRO stock may be up firmly for the past month, give or take, but the company’s $2 billion market cap is still way too big given the opportunity at hand, and in light of the fact that competition in the action camera market is still heating up.
Don’t look for GoPro stock — at least as we know it today — to ever be a great long-term trade.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.