What happened to GoPro's share price?

October 5, 2019

GoPro was founded in 2002 by Nick Woodman after an around-the-world surf trip. He strapped a camera to his arm to film his friends and turned it into a product. Turns out lots of other people wanted this product.

In June 2014, GoPro priced their IPO at $24/share, equating to a $2.95 billion market cap. Their valuation peaked near $12 billion in October of 2014 before a bumpy ride down to ~$700 million. We can learn a lot from this company.

Pre-IPO Growth

Heading into the IPO, they were growing like a weed:

  • 2011: $234,238 (+263.4%)
  • 2012: $526,016 (+124.6%)
  • 2013: $985,737 (+87.4%)

The GoPro camera is a marketers dream. It's a differentiated product designed to capture aspirational moments. Once GoPro found product-market fit, they scaled through promoting user generated content (UGC).

Each of their TV ads were set up the same: logo → user's face in the camera → aspirational footage → logo. Combine this with the rise of YouTube, Facebook, Instagram and other social sharing sites and GoPro took off.

Their price point was high enough to have strong unit economics on the first purchase. Most of their products retailed for $359 or $399 (lower through wholesale) and GoPro made $85-$95 of GM per unit. Marketing spend / units sold was $50-$55 during those growth years. While not all units are from new customers, it's safe to say GoPro had positive LTV/CAC after selling just one unit.

At IPO, GoPro's trailing revenue was $966.4 million. At a $2.95 billion valuation, this represented a 3.05x revenue multiple. E-commerce usually trades for 2.0x-3.0x, so 3.05x was reasonable.

GoPro posted strong results in Q2 and Q3 2014 and the stock rose to a valuation of ~$12 billion. This is where the trouble started. Investors expected growth to continue by either extending the product to a broader customer base or to increase repeat purchases and recurring revenue. GoPro struggled to execute on either.

Diluting The Brand

GoPro's strategy in 2014, 2015 and 2016, as outlined in their 10-K, included expanding the market for their product. With their unit economics, it was a reasonable move.

With such strong adoption, a positive LTV / CAC, and a growing brand, selling to more new customers made sense. However, the issue was the non-enthusiasts were a lot more expensive to acquire. It's a no-brainer for a professional snowboarder to get a GoPro. They just need to hear about it. But for the hobbyist? Not so much.

GoPro is a brand. Their videos are aspirational. They make you want to get off the couch and do something. Consumers who are 'watchers,' as Woodman calls them, will watch content but don't make it themselves. The promise of expanding TAM to extend the rapid growth was one mistake that drove price to ~10.5x revenue.

The issue with catering to a wider audience is it dilutes the brand. Instead of talking to everyone, they talk to no one. When GoPro wanted to increase it's TAM, it shifted the brand mainstream. As Woodman put it, the messaging became "less radical and less sports-focused."

For the active doers, this didn't help. The last thing they want to think is that their tools aren't built for them, that they aren't the highest quality. For the passive watcher, this also didn't help. They wanted to be inspired. Showing videos that were too similar to their current lives didn't inspire them to buy a GoPro and do amazing things.

Media Strategy: Know Your Product

In their S-1 and subsequent annual reports, GoPro touted a media business.

"We believe consumer demand for compelling content combined with GoPro’s self-capture technology and the explosive popularity of social media create a significant media opportunity for GoPro."

However, GoPro made the wrong move. They hired executives from Hulu, HBO and CBS and created original media content. They distributed it through streaming channels like Xbox Live and Roku.

There were two main issues. First, people didn't watch GoPro videos for the plot or character development. Even if you have innovative footage doesn't mean it belongs in a long-form TV series.

Second, a GoPro media platform didn't have a a distribution advantage over the ESPNs of the world. Their unique advantage over the rest of the market was A) a lot of cameras in the market and B) passionate customers in several different categories. The GoPro camera may be the best on the market, but a TV show could've also been developed on a knock-off competitor camera. What couldn't be replicated was the network and brand.

Instead of trying to aggregate eyeballs to chase ad dollars, they should've invested in their creators. The brand grew by having a network of brand ambassadors that uniquely connected with their respective audiences. A strong media strategy would've solve given resources to their creators to build their brand along-side GoPro. Depth over breadth.

More Hardware?

It's really hard to be a single-product consumer durable company. A few reasons:

  • Repeat purchase is long. If you made good products, it gets longer (ask any auto manufacturer)
  • It's hard to innovate on hardware
  • If you do innovate on hardware, feature enhancements don't sell
  • In order to innovate, you need a bunch of smart people. It costs a lot to pay these smart people

Although very expensive, the Karma Drone was a decent experiment. It was just poorly executed. GoPro learned the trouble of becoming a hardware manufacturer: few products have the adoption of the Hero cameras. Not to mention they were going up against DJI - a vertically integrated Chinese drone manufacturer.

If they did want to develop expertise in hardware, they could've become a shop that launched products. This isn't a great business, but at least they have a shot at a good return with a portfolio approach.

Software Is Eating The World

So if GoPro doesn't innovate on their hardware, how do they get more people to buy cameras? They don't. They get existing customers to buy software.

The issue is with consumer durables broadly. When you buy one, you don't need to replace it. As discussed, it's hard to innovate on hardware. And even with new features, a consumer product with a price point in the hundreds of dollars won't be purchased every year.

GoPro bought Quik and Splice (video editing) in 2016 and launched GoPro Plus (unlimited cloud storage) in early 2018. These were good steps. But their plan explicitly mentioned providing free software to sell into hardware. It should be the other way around.

Remember, recurring software revenue is more valuable than one-time hardware revenue. GoPro is in one of the most unique positions for a hardware company: a customer base that resonates with them over other hardware products.

If I was running GoPro, I would invest in becoming a partner for anyone who uses a GoPro. Build software and services that meet their needs and more. Maybe something like "media-in-a-box" where GoPro helps you scale a fan base or the back-end platform for influencers who use GoPro cameras.

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