GoPro shares have taken a beating in the last three months with a disappointing sales earnings release of its Hero4 Session and shares down approximately 40%. As some analysts hold that the valuation of GoPro Inc. is too stretched, predicting that the GoPro stock is going to plunge with the challenging profit margins and looming lockup expiration, investors are fleeing. GoPro is no more than a fad and its future really looks gloomy?
Before answer this question, let's take a look into GoPro's business model.
As shown in the canvas, GoPro should not be regarded as a simple wearable camera manufacturer anymore as it attempts to evolve into a media company. To project its future, a deep analysis of its revenue streams together with its key resources, partners and cost structure will help a lot.
Undoubtedly, the electronics sales will sill be the main revenue stream of GoPro in the near future. As an action camera manufacturer, it already has a multitude of daredevil followers globally, enjoying 72.5% market share in U. S. market and 56.7% worldwide action camera sales. Since wearable cameras are still on the early stage of adoption, the sales of GoPro can take advantage of this phrase of diffusion to grow its user base out of enthusiasts into casual individual users or even organizational level users. It is estimated that the wearable camera shipments will go up from 5.6 million in 2014 to 30.6 million units globally by 2020, according to Tractica.
Plus, the prospects of consumer drones and virtual reality cameras have not yet reflected in GoPro's stock yet. In June of this year, GoPro announced to build its consumer drone and plans to launch in next year. Since consumer drone market still lacks strong brand name, GoPro has a chance to become the leader of the market. Moreover, it will be a wise decision for GoPro to enter virtual reality sector partnering with Google in that Google's "Jump" VR ecosystem will save GoPro's efforts to do much development by its own. At the same time, users can get a better battery life which is still a limiting factor for GoPro users since cameras will automatically synced by the software developed by Google Jump. In this way, the software side of GoPro can also be reinforced with help of Google Jump, besides its own mobile app and studio software.
Apart from selling wearable cameras, GoPro finds its new revenue growth by monetizing its content. Partnering with YouTube, Virgin, Xbox, GoPro started to sell ads on these platforms by splitting ads revenue with its partners. According to Leo Sun, a Wall Street analyst, these moves can generate extra revenue for GoPro, but it is unlikely to be the main revenue stream for GoPro. For instance, YouTube analytics site Social Blade estimated that GoPro's YouTube channel is only worth 135, 500 US dollars to 1.2 million US dollars, just a drop in the bucket for GoPro which generated over 1 billion US dollars last year. However, it is indeed a smart move for GoPro to monetize its user-generated content through integrating its resources.
With the guide of this business direction, GoPro introduced GoPro Licensing in July of this year, an exclusive platform for advertisers to buy high-quality and expensive user-generated videos made with GoPro cameras, targeting a high-end and high-margin revenue advertising market. Since story-telling is becoming a trend for commercials and marketing strategy, high-definition, first person point of view, inspiring and innovative video ads witness a great potential market. According to Advertising Age, advertisers are expected to spend 540 billion dollars on advertising globally, a 4.6% increase over last year and the global ad spending is estimated to see a 5% rise year over year in 2016. As such, GoPro shall benefit from the growth of advertising demand. Making use of its high-quality popular videos and its big fans base where there are 3.1 million subscribers on YouTube, 5.8 million followers on Instagram, over 9 million fans on Facebook and about 2 million Twitter followers, GoPro has huge potential to bring its strong brand name in hardware manufacturing industry to the front of the advertisers, and in further to the media industry in the future.
Besides creating new revenue streams, GoPro also has a way to optimize its cost structure. Social networks enable GoPro to save a lot in sales and marketing cost and channel more efforts into research and development, which is the core of an innovative company. GoPro encourages users to share photos and videos on social platforms virally, which actually turn into a story-telling and life-style sharing ads for GoPro. Indeed, it is a effective, influential and economical way to do marketing. Shown in the Q3 preliminary earnings results statement, the cost of sales and marketing only accounted for 2.5% among its operating expenses in the Q3 just up 2.7% in the same period of last year.
After delving into the business model canvas of GoPro, it can be concluded that GoPro's future is not gloomy. Instead, it eyes the future in a insightful way through integrating its strong brand, good hardware products, supporting software and user-generated contents into a innovative media corporate. Under the trend of "every company is a media company" and the growth of advertising market, it is wise for GoPro to decide to evolve into a media company.
