I wrote this report for myself on 22/11/2020. I doubled down on my $GPRO investment on that date.

>Recommendation to Myself

Buy. I am currently long GPRO. I bought at 4$ on Feb 2020 and multiplied my bet at 6.96$ in Nov 2020. I see an acceptable margin of safety with meaningful upside (also a large speculative component).

>Company Description

GoPro, Inc., GoPro hereinafter, develops and sells cameras and mountable and wearable accessories in the United States and internationally. GoPro also enables customers to edit videos via apps. GoPro recently launched a subscription service that enables customers to store unlimited content on the cloud, total substitution of camaras and up to 50% discount on gopro.com. GoPro distributes products through retailers and directly through its website, gopro.com.

>High Level Background

Content is (cash) king in the digital age. Selling online requires continuously producing and distributing engaging content to funnel potential customers towards sales. As we buy more and more online, content is increasingly relevant to business. GoPro. delivers tools that maximize content creation productivity. GoPro also has an extraordinarily strong brand. For example, in Q4 2019 it captured 93% dollar share of the action camera category in the US. In FY2019, 90% of GoPro´s revenue came from the $300+ price band products, up 62% from 2018.

>Hypothesis

Following many years of decline, the company is turning around. It is doing so by making notable advancements in 3 key areas, 2 of which have been greatly boosted by the pandemic:

  1. Margins: the company has been making moves to shift to a DTC model. COVID19 has accelerated this shift, enabling the company to unlock value in its distribution scheme and expand margins, changing the nature of the business model meaningfully.
  2. Opex: since 2016, the company has been reducing operating expenses consistently. It is back to 2014 levels of leanness and there are signs the company is turning around culturally speaking too. This enhances the financial benefits of 1 and 2 above. I believe the above sets new horizons for GoPro. The company now has a bigger business opportunity ahead and is getting / is in shape to pursue it. I expect the company to produce an EPS of 0.66$ for FY2022 and I would not be surprised to see it trading at double digits soon.

>In Depth

Revenue: GoPro cameras are now going to funnel in part of the 50% of business travel and 30% of office life that is not going to come back, multiplying GoPro´s TAM. GoPro is also making better cameras and is driving a hardware renewal cycle.

>Conclusion

GoPro has 2 key assets that enable it to pursue an expanding TAM brought about by COVID19: its brand and its camera expertise. It has silently and explicitly taken steps to embrace this opportunity, by launching software that enables its cameras to be easily used as webcams and promotional videos such as this one throughout Q3 2020. These steps correlate with a far higher than expected Q3 EPS and so does the jump in search volume for the keywords ‘gopro webcam’, ‘gopro streaming’ and ‘gopro vlogging’ (and their related keywords). It has the financial health and the focus on leanness that will enable it to make a good attempt at seizing the business opportunity that these correlations may be signalling.

Investor, Technologist. Post opinions, not financial advice. Do your own research. Follow me at TW:alc2022