Yes, the little camera maker that could is going public on Thursday, 26-June. Should you buy a piece of the California based company? Well, that depends…
Update – Looks like the IPO priced at $24.00/share. This is the high end of the expected $21-24/range.
Update 2 – The stock opened at $28.65 and is now trading in the low 30s. Not saying we called it but…we called it.
The explosion of the action sports camera market has been impressive. Five years ago it wasn’t too common to see the little mini-toasters on peoples heads on even the best of days. These days, they seem the norm from the dog park to the bike park. The exact catalyst to GoPro emerging as the Kleenex (most iconic/successful company) within the wearable market is likely a combination of a few things. To start, the company has continually pushed image quality to new heights, with their 3+ Black still atop the pyramid of capture-ability. To add, they’ve kept price in check, made the user experience as easy as possible, built a fairly robust product that can be dropped, put in water, and generally abused without much of a problem. Plus, their marketing/branding strategy of signing top notch athletes and creating oogle-worthy clips has been only surpassed in brilliance by incentivizing the customers themselves to create content for the company for free. Yes, this product was (is) positioned perfectly to play on the narcissistic look-at-me modern day mindset.
“Fame is the worst drug known to man” — Jay Z – Hmmm, I’d argue dangling the carrot of fame is an even worse drug drug known to man…GoPro played on this as well as Twitter or Facebook – just with a camera, not a software platform.
Company thoughts aside, we’ve combed through the latest prospectus which you can find here to give our audience the basic breakdown of the biggest IPO in our little space in the world we’ll likely see in the next decade.
To start, the company is offering 17.8M shares (8.9 of these are being offered by investors in the company, not the company itself). The offering is expected to price between $21-24 per share for total proceeds of close to $500M (One Half a BILLION). This doesn’t mean the IPO will actually price at $21-23 a share, its merely a prediction. And we are predicting it prices above this range and closes its first day of trading just south of $30/share. Why? You guys. Retail demand will be strong.
While we don’t want to make Earlyups “Equities 101”, the $21-23/range puts the company at a fairly high PE (price/earnings ratio) multiple (backwards looking – FY 13) of ~47, compared to Canon’s more current P/E of ~16, Garmin’s of 18 and Ambarella, the company’s hardware manufacturer, of 38. Question is, are these fair competitors? Does the company have a lot of room to grow? How? (Side note – we know there are a thousand of ways to measure a company’s value. It’d be silly to only use one, but for entertainment, we’re doing it anyway)
To start, I think the answer is no, I do not believe Canon, Garmin or supplier Ambarella are really competitors. They are dinosaurs in the “what do we do” kind of way compared to GoPro. Second, I’m not a genius when it comes to camera functionality but I don’t think I’m alone when I say there is a *ton* of fertile ground for the GoPro to improve. They could improve at the top level offering interchangeable lenses, better aesthetics, slightly larger sensors (4K is on the horizon) all at a slightly higher price point. They could even go after the full on pro level (non-wearable) cameras such as RED or Black Magic with the money they are raising. The lower end models could be improved upon on the user experience level (hey GoPro, you guys hiring for product development?!). Most importantly, the company is well positioned to become a RedBull like media house if they play their cards right. This is perhaps the biggest area of potential growth and why the company deserves a much higher multiple than any of the straight hardware plays mentioned above.
So then who is a good benchmark? Really, we can’t think of one. But with companies like Amazon trading at a PE of 581 and Facebook north of 80 I think this company, with strong retail interest, will end up trading around a PE of 60 which would put the stock price right around $30.
Our suggestion? Although you can’t get in on the actual IPO offering, you can get in on the opening day of trading. Buy if its between $23-28/sh. If not, better to hold and see what happens. (just our take- don’t hold us to that!)
The prospectus is full of fun facts about the company. One thing you have to do when filing an IPO is basically list all the ways you could fail. Its called “Risk Factors”. That would be like showing up to an interview and telling your would be boss all the ways you suck. You can find that on page 18.
The CEO, Nicholas Woodman, is selling 3.6M shares in the offering. Yeah, do the math. No matter where the IPO prices, Nick is officially a rich, rich man.
We believe Andrew Whiteford should receive a significant kickback from this offering. His name however was nowhere in the prospectus.
We’ve already alluded to the future of GoPro above. However, its worth discussing in more detail:
- Better Camera – Yes, the camera maker will come out with something 4K (at normal frame rates) soon. This is obvious by what you can already find on Amberalla’s website
- Easier Editing – GoPro studio is great for converting but pretty limited when it comes to chopping up your new edit. We wouldn’t be surprised to see the company expand on its post production software capabilities.
- Better Aesthetics – As much as we hate the look of the GoPro, it is an iconic looking camera. Still, the “stealth” POV look remains to be really nailed. Yeah, I’d sure use my camera more if I didn’t have to put a toaster on my head
- Better accessories – GoPro’s mounts have gotten better but there is still a lot of fertile ground here. From hand gimbals to more stealthy mounting systems, they can get better
- Better low light performance – I’ll admit it, I used one of these at my sister’s wedding not too long ago. You know, even in the dark church it did well. It could be better though…
- Interchangeable Lenses – Imagine being able to change your FOV and f stop with a lens change. This is more “pro only” but cool
- More seamless app – The app isn’t bad but it isn’t good either. We expect app improvement soon
- Non-POV camera – If Oakley funded the RED then why can’t GoPro go on its own and create a RED/Black Magic 4K 120FPS pro level interchangeable lens camera too? We wouldn’t be too surprised although the market is uber competitive…
- Media House – This is the big unknown. What will they do with all that content?
- Drone Use – Yeah, these cameras kick ass with use of a drone. Earlyups even bought one. See sample footage below…