This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

GoPro's Future Is Foggy Despite Picture-Perfect IPO

Stocks in this article: GPRO TWTR SSNLF SNE JVCZF AAPL

NEW YORK (TheStreet) -- There was nothing amateurish about GoPro's (GPRO) initial public offering last week.

After the stock skyrocketed 31% on its first day to close at $31.34, shares hit an intraday high of $40.47 on the second day of trading. On Monday, shares closed at $40.55, representing a 70% jump from GoPro's high-end initial offering of $24 per share.

Already billed as one of the hottest IPOs to have hit the market since Twitter (TWTR), GoPro's blockbuster debut is certainly living up to the hype. For its sake, let's hope this is the last time the word "hype" and GoPro are used in the same sentence. But as with its cameras used for underwater images, don't hold your breath.

>>Apple iPhone Ad Sets Tone for Smart Home Products in the Pipeline

There are two things that worry me about GoPro's long-term success. First, the stock's valuation is now trading at 60 times 2013 earnings. The market is betting that GoPro's earnings will rise over time. But even if they do, the competition in this space from Samsung (SSNLF) and Sony (SNE) are being ignored.

Consumer electronics has never been a high-margin industry. The only guarantee is electronics prices will drop over time. It's the only way to maintain long-term revenue growth. With GoPro's 2013 margins falling 6.5% to 36.7%, this has already begun to show.

While Samsung and Sony both have strong brand recognition, the only mistake they've made up to this point is not having invested in GoPro's core market to make any sort of impact. It is only because of this lack of interest from Samsung, Sony and others like JVC (JVCZF) that GoPro now enjoys a 45% market share.

GoPro, which launched its first high-definition camera five years ago, has sold almost nine million of its mountable/wearable HD cameras. It's an impressive number. But it's still a niche market, which brings me to my second point of worry -- commoditization and pricing pressure

Any market worth pursuing is certain to attract a lot of attention. GoPro's success and its business model will cause Samsung, Sony and several others to reevaluate the opportunity they have ignored.

Despite GoPro's dominant market position, GoPro's first-quarter revenue of $235.7 million was down almost 8% year over year. Earnings of $11 million fell more than 50% due to pricing/margin pressure. At some point prices may drop too low for the business to be worthwhile.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,664.51 -8.09 -0.05%
S&P 500 2,054.29 +2.47 0.12%
NASDAQ 4,762.5570 +4.6780 0.10%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs