GoPro CEO Nick Woodman, who controls 77% of the company's vote, acknowledged to CNBC on Monday that he would consider a sale or partnership as he tries to bring the company back to profitability. The news outlet later reported that GoPro had retained JPMorgan & Co (JPM) - Get Report to explore its options. The San Mateo, Calif., company did not respond to queries for this story.
Tech giants such as Apple Inc. (AAPL) - Get Report and Alphabet Inc. (GOOGL) - Get Report have more cash than they can spend, and could easily cover GoPro's roughly $840 million market cap. However, bidders for GoPro might be more likely to come from Shenzen than Silicon Valley.
Video Exclusive: Inside Jim Cramer's Action Alerts Plus Club for Investors
"They have a high-value brand -- a lifestyle brand -- like X-Games or Red Bull -- but they have a cost structure that will quickly bury the company as the price of a GoPro drops to match the Chinese competition," Nat Burgess, managing partner at strategic tech advisory firm TechStrat Ltd, said in an email.
GoPro's revenues were squeezed in the fourth quarter as it cut prices on the Hero6 Black, Hero5 Black and Hero5 Session cameras, and on its Karma drones. The company's "price protection" strategy, as GoPro termed it, carries an $80 million hit. GoPro expects $340 million in revenue for the quarter, versus Wall Street expectations of $472 million. The company is exiting drones because of thin profits and regulatory challenges.
If price cuts are squeezing margins, GoPro could seek a backer with experience in lower-cost production.
"The most obvious synergies would be with a Chinese manufacturer than can build to a low price point but sell under the GoPro brand," Burgess suggested.
More established camera brands have looked to China for backing in the past.
Shenzen, China, drone maker DJI bought a minority stake in professional camera maker Hasselblad November 2015 and reportedly increased the position in January 2017. Since the initial investment, the Sweden-based Hasselblad and DJI have come up with innovations such as the the world's first 100 megapixel drone.
GoPro could appeal to DJI, Burgess suggested, if the drone maker has more dry powder.
Phone manufacturer Huawei Technologies Co. Ltd. was reported to be a potential suitor for Blackstone Group's (BX) - Get Report stake in German camera maker Leica Camera AG last year, although the parties never announced a deal.
Blackstone acquired its 45% stake in Leica in 2011, and Huawei has a long-term partnership with Leica in which the Shenzen-based company outfits its higher-end phones with Leica cameras.
GoPro might also find a home at a Chinese company with greater ambitions in the U.S.
"The market for imaging devices is changing fast and there are a number of Chinese firms with low-cost manufacturing, access to capital, and limited brand equity in the west that would be logical buyers." Burgess said.
Editor's note: This article was originally published by The Deal, a sister publication of TheStreet that offers sophisticated insight and analysis on all types of deals, from inception to integration. Click here for a free trial.
More of What's Trending on TheStreet:
- Warren Buffett's Berkshire Hathaway Adds to Board in Possible Succession Hint
- When's the Tax Break Party for Retailers?
- Fisker Debuts $129,000 Tesla Killer at CES 2018
- Nelson Peltz on Amazon, Apple, Cryptocurrencies and His Battle at P&G