GoPro Touts Media Ahead of IPO for Higher Value Than Cameras

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If it walks like a camera maker and talks like a camera maker, why is GoPro Inc. pitching itself as a media company in its initial public offering?

An extra $2 billion in market value, for starters. GoPro -- which made its $1 billion in revenue from selling wearable cameras and accessories -- is commanding a valuation more in line with media companies like Walt Disney Co. than with its consumer-hardware peers. With almost three years’ worth of footage uploaded last year by customers filming their exploits, GoPro has emerged as one of the hottest new brands, in the league of punk-culture video producer Vice Media Inc., which is said to be valued as high as $3 billion.

GoPro is tapping a younger, selfie-driven generation, in which skiers can showcase their steepest runs and surfers can share their biggest waves. While the San Mateo, California-based company has yet to make money from the content, it says that media will ultimately serve as an additional source of growth. Even if GoPro can’t boost revenue from the videos, they function as advertisements that encourage more users to buy the hardware, said Mediatech Capital Partners LLC’s Porter Bibb.

“This is a very intelligent approach because it’s not monetizing the content, per se, but the audience that they’re reaching,” said Bibb, who’s a managing partner at the New York-based private merchant bank, specializing in media and technology. “They’re in the right space now in terms of valuation.”

Market Value

GoPro and selling stockholders are offering 17.8 million shares for $21 to $24 apiece in the IPO scheduled to price tonight, raising as much as $427 million. At the upper end of that range, it would have a market value of about $3 billion, based on 123.1 million shares outstanding after the IPO.

That would value it at 3 times 2013 sales, more in line with companies from Disney to 21st Century Fox Inc. Camera makers command less than half of that valuation, according to data compiled by Bloomberg. If it were valued more like a consumer-electronics company, based on sales, its market value would be closer to $1 billion, the data show.

Jeff Brown, a spokesman for GoPro, declined to comment.

Surfer-turned-Chief Executive Officer Nicholas Woodman, 39, conceived of GoPro a decade ago, wanting to record himself riding the waves. The company sold 3.8 million high-definition cameras last year, almost half of the U.S. camcorder market, according to market-research firm NPD Group Inc.

It only began to turn itself into a media company this year, signing content agreements with Microsoft Corp. for a channel on Xbox Live, as well as Google Inc.’s YouTube and air carrier Virgin America Inc. GoPro says it doesn’t expect revenue from content to be material this year.

Costly Change

The transformation into content provider will be costly -- increased research and development spending already has eroded profit margins. With the exception of Apple Inc., few companies have made this kind of switch, said Charlie Anderson, a Minneapolis-based analyst at Dougherty & Co.

“Can you think of any other examples where this has been done before?” said Anderson, who covers GoPro’s competitors and suppliers. “They’ll be stuck at a device multiple if they can’t monetize media and the burden will be on them to innovate.”

Apple’s path wouldn’t be a bad one to follow. Over the past five years, the Cupertino, California-based company quadrupled revenue from iTunes, software and services to $16 billion -- about 9 percent of total sales last year, data compiled by Bloomberg show.

Content Costs

While GoPro hasn’t spelled out a vision for making money from content outside of its partnerships, the company demonstrated the power of its videos in its IPO presentation to investors. Harnessing the cameras’ HD quality, GoPro shows footage from the point-of-view of bungee jumpers, ice skaters and a pelican learning to fly for the first time.

Beyond the glamour, GoPro has been profitable over the four years of financials disclosed in its prospectus. With such strong fundamentals, it’s not as risky for GoPro to branch out into media, according to James Gellert, CEO of Rapid Ratings International Inc.

“They want to invest these dollars in the diversification of their revenue stream,” said Gellert, whose New York-based firm uses quantitative models to grade securities. “The fact that the product GoPro creates is already being used for media purposes makes it a much smaller leap for them to be a media creator.”

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