Breaking Down GoPro’s Business

In last week’s column, I talked about the challenges that face what I termed “one trick ponies” – companies whose entire business is built on a single product, especially when that product is relatively undifferentiated. One of the three companies I used as examples of that phenomenon was GoPro and today I wanted to do a deeper dive on the company. As I mentioned in last week’s piece, GoPro’s financials actually look pretty sound but there seem to be two major concerns on the part of investors about where the company goes from here.

Sound Past Financials

First of all, GoPro is growing at a decent clip. It had a little blip in early 2014 where revenues briefly dipped but has grown strongly since then off the back of the launch of the Hero4:GoPro revenue

This growth has come with improving margins as you can see from the chart below:

GoPro operating margin

Again, things looked dicey for a while in early 2014 but they’ve recovered nicely since. To be sure, margins have leveled off over the past year and this is definitely worth watching, but they’re leveling off at a pretty respectable level for a consumer hardware company.

Investor Concerns About the Future

Of course, all that growth is driven almost entirely by an increase in devices shipped – GoPro shipped 7 million cameras in the past 12 months: GoPro units shipped

Generally speaking, GoPro’s fourth quarters have been by far its largest – last year, it shipped 2.4 million devices in that quarter alone. However, that was driven by the launch of the Hero 4 and GoPro doesn’t have an equivalent product introduction this year to drive similar sales. It did launch a product this year – the Hero 4 Session, a smaller, simpler alternative to its top-of-the-line models – but it has sold poorly and, just in the last few days, its price was reduced by $100 for the second time, leaving it at half its original price of $399. The combination of these two factors led to disappointing results in Q3 and poor guidance for Q4, when the company is expecting 17% lower revenues than a year ago. 2015, as a whole, will still be well above 2014 in terms of revenues, but Q4 is going to be significantly down and investors are starting to get worried this is a sign of worse things to come.

GoPro’s management maintains it’s just the Session that is selling poorly, and the high-end Black and Silver models are still doing fine. But, with the heavy price cut to the Session, there’s a risk that, if it starts selling in better numbers, it will be because it’s cannibalizing high-end sales. GoPro’s major chipmaker, Ambarella, has reported its next quarter’s sales will be down as well, which has been taken as another negative sign for GoPro’s performance in the quarter.

Revenue per unit shipped – not exactly average selling price, but fairly close to it – has been declining already and there’s a danger this decline will continue:

GoPro ASP

Reasons for Optimism

GoPro’s management, of course, is attempting to paint a more optimistic picture – it’s pointing to the company’s investment in content management tools and in content itself as possible future revenue streams and has also shown off early footage from a drone camera called Karma it intends to launch next year. But the content strategy is unlikely to generate significant revenue in 2016 (the company refused even to comment on whether this revenue would be material in its last earnings call) and full details around the drone product haven’t been released yet. So investors are having to take these reasons for optimism on faith at this point, something few of them seem willing to do.

One other factor has helped the share price in the past week or so. The reports Apple might want to buy the company. However, there’s no concrete evidence this is the case and it seems likely it’s little more than wishful thinking on the part of those reporting this possibility.

Reinforcing the One Trick Pony Problem

All of this serves to reinforce the problem I outlined in last week’s column: companies highly dependent on sales of a single product – in GoPro’s case, “capture devices” – may do very well for a period of time but, unless they are able successfully to parlay that success into a broader-based strategy that goes beyond a single category, they often begin to struggle. This is particularly the case when the company fails to build a meaningful ecosystem around its products. GoPro’s financial filings suggest it believes its partnerships with retailers, celebrities, and others will provide differentiation but, given its latest product has essentially flopped, there are now legitimate questions about whether its single trick is enough.

Published by

Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

9 thoughts on “Breaking Down GoPro’s Business”

  1. I was a little annoyed at myself for GoPro not showing up on my radar early on. But then as I watched carefully it wasn’t long before only having essentially one product, no matter how popular, started to wear thin, especially when safety became a real issue. How much bad news can one product weather?

    I’m not as annoyed anymore.

    Joe

        1. Apple also “essentially have one product”. 60% of sales directly, probably 80% with directly subordinated sales

          1. “Essentially” is not the same. Even if the iPhone disappeared today, they still have a portfolio of products and services that are all still profitable. Apple will be smaller, but still selling products.

            GoPro does not. If the camera disappeared there would be nothing left of the company.

            To my knowledge no one has died from using an Apple device. GoPro had such an incident and almost tanked.

            Joe

          2. http://www.ubergizmo.com/2013/07/charging-iphone-5-reportedly-causes-death-through-electrocution-in-china/ (another reason to not have metal phones) Granted, probably due to a bad charger, probably offbrand, but… metal phone required for this to “work”.
            and the general (not iphone-specific) http://www.telegraph.co.uk/technology/11881900/More-people-have-died-by-taking-selfies-this-year-than-by-shark-attacks.html . About same level of stupid as drilling holes in a helmet to mount a cam on it…

          3. Right. I was remembering another event incorrectly, the Hawaiian plane crash where the GoPro showed the pilot taking selfies.

            Joe

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