GoPro (NASDAQ:GPRO) surprised traders on Feb, 7 by reporting a small, fourth-quarter profit, leading to hope that the company and GoPro stock might have a future, or at least be worth something.
The action-camera company said it earned $31.67 million, or 22 cents per share on revenue of $377 million in its fourth quarter. The market cap of GoPro stock as of this morning was $794 million.
GPRO needed a hero this Christmas and it got one in the Hero 7, a new lineup of cameras that it unveiled in September. The company’s picture storage program, GoPro Plus, also drew 14,000 more subscribers for $5 per month, bringing the total number of subscribers to the service to 199,000. That should add about $3 million of high-margin revenue to the company’s top line each quarter.
A Difficult Year
Last year , which included the cancellation of GoPro’s Karma drone and massive layoffs, was tough for the company, whose head count was cut from 1,273 to 841.
CEO and founder Nick Woodman learned some hard lessons from which GoPro is now benefiting. As a result, rather than trying to expand into new hardware markets like drones, he’s focusing on software and services. Rather than keeping things static, he’s looking to solve problems before they appear. For example, GPRO is moving some production from China to Mexico to avoid tariffs.
There is a new maturity to Woodman, and GoPro, that business reporters can admire. But investors who are not professionals shouldn’t buy GoPro stock, since a marginally profitable company that is growing revenue in the single digits is not where casual investors should be putting their money.
GoPro stock has rallied on the heels of the company’s Q4 results to $5.66 as of this morning, but GPRO stock is still well below its 52-week high of $7.60.
GoPro stock has risen on takeover rumors before.
Xiaomi, the Chinese phone company that went public in Hong Kong last year, was said to be kicking GoPro’s tires in April. That report boosted GoPro stock for a short time A few years before, Apple (NASDAQ:AAPL) had been said to be mulling a bid but those rumors also came to nothing, after sparking a brief but sharp rally of GoPro stock.
The fact is that GPRO would not have greatly benefited either AAPL or Xiaomi. GoPro is not worth much as a technology. It might, however, be useful within its outdoor niche for a company like Under Armour (NASDAQ:UA) or Nike (NYSE:NKE), which could use it to enhance its own line of fitness monitors and other electronic products.
In any case, no deal is going to be made without Woodman’s cooperation. He owns almost 76% of the voting shares of GoPro stock. Any suitor would have to convince Woodman that GoPro would prosper under its umbrella. An acquirer would probably also have to guarantee the CEO autonomy, and possibly grant him an even larger fiefdom and budget.
The Bottom Line on GoPro Stock
Anticipating a deal would be a silly reason to buy GoPro stock, as our Lawrence Meyers wrote, but it may be a best-case scenario for the owners of GPRO stock.
GoPro now knows what it is — an adventure and athletics technology company, rather than a camera and drone company. Its CEO has gotten through a tough spell and come out the other side, a little sadder and a little wiser, while GoPro stock is still worth something.
The problem, in the near term, is that the athletic apparel guys like Under Armour, Nike and even Columbia Sportswear (NASDAQ:COLM) would have to be convinced they can stay competitive and make money in electronics before they would agree to buy GPRO. It would be Woodman’s toughest selling job yet.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL.