MorningWord 06/01/15: GoPro Yourself

by Dan June 1, 2015 9:32 am • Commentary

Last Thursday on CNBC’s Fast Money the panel discussed GoPro’s (GPRO) move into new hardware markets, with a “guad-copter” drone and a six camera spherical array used to capture content for virtual reality. Both were announced by GPRO CEO Nick Woodman at the Code Conference, watch here:

My immediate response was that these announcements are absolute nonsense from an investor standpoint, and for those with any memory of the late 1990s tech stock bubble, the stock’s 6% gain Thursday was reminiscent.  All the power to Woodman and GPRO as they should be looking for ways to leverage their core products, and these two accessories should be interesting to a small subset of their users. But for investors to bid the shares up on the opportunity these two products present is just downright silly.  At the same conference, famed tech analyst Mary Meeker (formally of Morgan Stanley, and now Venture Capitalist at Kleiner Perkins) presented her annual Internet Trends and stated that commercial drone shipments are to grow 170% year over year in 2015:


Okay… Drone adoption, both consumer and commercial, is sure to be hampered by tons of regulation, and will be far from a layup.  The first fatality from an out of control commercial drone (and that is coming to a theater near you) will initiate a breathless media panic like we haven’t seen since the Summer of the Shark (or Ebola in the U.S.) and a public debate on their risk / reward.


And a spherical array that loads six GPRO cameras, pahleez. Those trying to make a bull case for GPRO based on these products make little sense. And at some point in the near future we will look back and ask ourselves how did we miss the oddity of the rationales given for some of these stock moves in 2015.

All that being said, I would not short this stock until there is a meaningful slow down in revenue growth.  Trading at a little less than 4x sales, and 3.3x next year, and 33x this year’s expected earnings, and 28x next, the stock is not ridiculously expensive iff you believe they only need to get the camera thing right while they only need to derive a little value from their accessories or content platform.

So the hating here is more on the sentiment around the products and what the move represents to the broader tech mania we seem to be in.  The stock’s 60% peak to trough decline from October to March erased a bit of the exuberance, while the 22% short interest and continued skepticism should keep the stock squeezy.

And in a market like the one (now with M&A fever!) wouldn’t it be fitting to see a $10 billion deal for one of the poster-children of whatever the current tech mania exists?