When GoPro (NASDAQ:GPRO) shared its subscriber count topping above 500,000, investors bought the stock in droves. GoPro stock broke above its 200-day moving average of around $4.00. Technology investors who missed the rally will wonder if they missed a former fad.
If action cameras are back in vogue, what is GoPro really worth?
GoPro Stock Rises from Nowhere
GoPro’s HERO9 Black benefited from strong demand, lifting the paid subscriber count to the 500,000 milestone. CEO Nicholas Woodman said, “Thanks to a stellar global launch of HERO9 Black, our paid GoPro subscriber count is ahead of where we expected to be at this time and bodes well for us to exceed our previously-stated target of 600,000 to 700,000 paid subscribers by year-end.”
Since most customers are buying the action video camera online, GoPro does not need to pay affiliate marketing fees. Plus, marketing and advertising activity are not necessary to drive demand. And with customers bundling the purchase with a subscription, profit margins will expand.
Attractive Subscription Offering
GoPro’s monthly subscription gives customers peace of mind, thanks to the “no questions asked” total camera replacement. The service also offers unlimited cloud storage. End-users need not worry about losing camera footage or running out of space on the device. To up-sell, the $4.17 per month subscription includes a 50% discount on the company’s website. And since customers may cancel the subscription at any time, the service is affordable enough for the masses.
Strong Growth Rate
The Hero 9 and the strong subscription uptake drove a 230% growth in sales on GoPro.com upon launch, compared to the two-week post-launch period last year. If word of mouth for the new product continues, investors should speculate that sales will pick up the pace for the next quarter.
Investors are enamored with companies whose subscription growth rates are in triple-digit percent. For example, Fastly (NYSE:FSLY) and Roku (NASDAQ:ROKU) posted strong annual recurring revenue and subscriptions, respectively. And although the comparison only scratches the surface, investors care about the user growth more than profits.
In the second quarter, GoPro posted an adjusted EBITDA loss of $22.4 million. Gross margins of 31.6% are consistent with past quarters, while revenue and earnings per share are erratic since Q2/2018. The lack of increasing revenue in past quarters suggests that investors must guess if the newest Hero camera will benefit from demand gaining momentum. CEO Woodman said,
“We’ve seen demand rebound across all geos and all channels. And while dot com has done really well, as we expected, we’ve also seen a stronger-than-anticipated rebound at retail again in all geos, which is great to see, both for GoPro sales but just in general, to see consumer confidence come back like that.
The executive’s opinion is not overly exaggerated. Consumers are not traveling on airplanes as much but are still traveling. Those who are still having adventures, like road trips, will need a rugged camera. By capturing those experiences and sharing them online, GoPro has a moat in the action camera business.
GoPro is off to a good start for the quarter. Sales growth may accelerate into 2021 as more people go on adventures. As the pandemic eases by then, travel will rebound, benefiting GoPro’s business.
Buying in GoPro shares may ease in the weeks ahead and profit-takers may sell shares. If shares dip, those who missed the big rebound may get the stock at a better price.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.