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GoPro Needs To Change Its Business Model

Summary

GoPro's media story was a facade to distract investors from a fadish consumer products business.

The Session shows the firm cannot manage the release of new products effectively.

The quadcopter will face intense competition.

The firm should scrap the buyback program. Instead, it should acquire a livestreaming app.

When GoPro (NASDAQ:GPRO) did its IPO, the story surrounding the stock was the media segment. It was hyped up even though it provided little earnings. It was essentially a good marketing tactic, not a business. While this marketing is certainly an advantage over other action camera companies, it shouldn't be expected to be a meaningful profit driver. This is because GoPro doesn't own all the content created with its devices. Secondly, as someone who watches a ton of YouTube (NASDAQ:GOOG) (NASDAQ:GOOGL), I can tell you a popular YouTube channel doesn't even generate individual creators enough money to be considered top paid actors, so there is no way it can move the needle on a multi-billion-dollar corporation.

While I was correct to see the media story as a charade, I let up on the negative gas pedal in the low-$40 range. This is because I felt at that price, most investors realized this fact. While this was the case and the stock did rally for a few months to over $60, I made a critical mistake in analyzing the business dynamics. I realized the media story was wrong, but I didn't realize why it existed in the first place. The story was made up because management knew investors wouldn't get excited about a consumer products company. It is a business with intense competition. Investors would have worried about whether GoPro was a fad and it wouldn't have raised that much money at the IPO.

The reason why the stock is now going down is because investors are worried that they've seen this movie before as a once-hyped consumer products company falls back down to earth. The firm didn't realize how the hype surrounding the IPO...


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