It takes determination to buy a stock that has lost 94% of its value, especially in the case of GoPro (GPRO 6.31%). Its decline started back in 2014 after hitting its all-time high of $93.85.
But a unique comeback story is emerging.
GoPro is transforming the way it sells its market-leading action cameras while also focusing on new subscription-based revenue streams. The result so far has been consistent profitability, which is gradually reducing the risk of owning GoPro stock and paving the way for future upside.
The company’s third-quarter financial results (released Nov. 3) were another step in the right direction, and that’s why GoPro stock is now a long-term buy.
GoPro is back in action
Ever since GoPro stock went public in 2014, many investors feared the company wouldn’t survive. Its one-dimensional business model, selling camera hardware and accessories, struggled to grow, and as a result, it had less money to invest in innovation. The company had to make seismic changes to turn its fortunes around, and it’s definitely happening right now.
The company used to rely solely on large retail chains to sell its products, but it has transformed its GoPro.com website into a direct sales channel, which now accounts for about 32% of sales. This has many benefits including the ability to keep a larger portion of the profits from each purchase as there is nothing on the retailer’s table. Additionally, GoPro now has a direct point of contact with its customers, allowing the company to upsell, cross-sell and promote new products.
In September, GoPro added three models to its camera range under the new Hero 11 banner. There’s the flagship Hero 11 Black, the Hero 11 mini, and the Hero 11 Black Creator Edition. With all the ruggedness of its larger counterpart, the mini is even more portable and can be controlled via a smartphone.
The Creator Edition goes one step further with accessories such as the handgrip and the light mode as well as a longer-lasting battery. All three models can record in 5.3K high definition, and a single shot can be shared across any popular social media platform without the need for manual cropping or editing of the content.
The Mini and Creator Editions are designed to increase GoPro’s addressable market and, in turn, the company’s revenue. But there is another revenue stream with even more potential.
GoPro’s subscriber base continues to grow
Subscriptions are the other game changer for GoPro. For $49.99 per year, customers can access exclusive product discounts, unlimited cloud storage for their content, and the ability to live stream directly from their GoPro camera.
In the third quarter, GoPro had 2.1 million subscribers, up 55% year over year. The company says this could bring in more than $100 million in sales in 2023. But that’s not even the best thing for investors. Subscription revenue has a gross profit margin of between 70% and 80%, which is more than double GoPro’s hardware margin. That means more money could flow into the company’s bottom line.
GoPro also reported 282,000 subscribers to its smartphone camera application, Quik. That’s not a huge revenue driver, but the company will double its subscriptions in 2023 by releasing synchronized mobile, cloud, and desktop editing software, unlocking more high-margin revenue.
Why GoPro stock is a buy for the next decade
Consumers are grappling with high inflation and rising interest rates, and since GoPro sells consumer products, it’s natural for the company to struggle in this environment. Still, the company’s third-quarter financial results came in at the high end of its guidance with $305 million in revenue and $0.19 in adjusted earnings per share.
Additionally, revenue grew quarter-on-quarter in all geographic markets, which is positive as most western countries head towards the colder seasons and less outdoor activity is expected.
With a quarter remaining in 2022, GoPro expects adjusted earnings per share to be as high as $0.52. If it hits the mark, and based on its current stock price of $4.91, it will put GoPro on a price-to-earnings multiple of just 9.4. For context, the Nasdaq100 The tech index currently trades at a P/E of 23, meaning GoPro stock would need to more than double to trade in line with the broader tech sector.
Make no mistake, it will be some time before investors regain confidence in GoPro stock considering the stock is down 94% from its all-time high. But the company has expanded its product line, improved its distribution mix, and added new high-margin revenue streams. In addition, the weak economic climate will not last forever.
GoPro is making the right moves so investors could look back a decade and be glad they risked the stock at this price.