The GoPro Revolution Will Be Televised

 

Investor's Business Daily
 

Pioneers of innovative technologies often end up being savaged by new competitors.

 

Apple (AAPL) did not invent the smartphone, but it knocked out early leaders such as BlackBerry (BBRY). Social networking was not invented by Facebook (FB), but pioneering players such as MySpace got crushed.

GoPro (GPRO) might be an exception. The 12-year-old company pioneered and remains the standout in the miniature, mountable high-definition video camera market.

“GoPro is the inventor of this market and the competition hasn’t stepped up,” said Chris Chute, analyst at research firm IDC. “Usually there are fast followers, but that is not the case. Our data show GoPro is gaining share,” he said.

The entire market is relatively new. Separate from traditional handheld camcorders, IDC refers to the category as point-of-view cameras — small and wearable, waterproof and shockproof — that can record video in high-definition quality. They’re also called action or sports cameras, initially popular with surfers, bikers, skiers and other outdoor enthusiasts who record their adventures.

Now, uses are rapidly proliferating. Recent, popular YouTube clips include a camera attached to a bottle of whiskey at a wedding reception (2.1 million views), a three-minute fictional film fantasizing superman wearing a GoPro camera (15.6 million views) and a fireman rescuing a kitten (24.5 million views).

The cameras have also become widely used in reality TV shows and Hollywood studios for filming close-ups such as explosions.

“When Hollywood blows up a set, they buy more GoPro cameras,” Chute said.

This segment of the digital camera market is small relative to all digital cameras, but it offers high growth potential, with plenty of competitors now starting to pour in. They include Sony (SNE), Ion America, Canon, JVC, Polaroid, Garmin (GRMN) and others. For now, product reviews and analyst reports suggest GoPro leads the field in popularity and performance by a safe margin.

Building A Core Market

A total of 2.1 million action camera units shipped in the second quarter of 2014, with GoPro holding a 42% market share, IDC reports. The next closest competitor, Ion, has a 12% share. Sony, which still leads the traditional handheld camcorder market, has an 8% share of the action camera field.

Inasmuch as Apple defined the smartphone market with brand recognition above the rest, as Nike (NKE) does in sport shoes, GoPro is on a similar, innovative track.

GoPro said it sold 1.089 million units in Q3, up 32% from the same quarter a year ago.

“They invented a category that has the potential to grow way beyond the historical camcorder category,” said Michael Pachter, analyst at Wedbush Securities. “They’ve created a great strong brand, driven by partnerships with athletes, celebrities, and high-profile events that cater to its core audience.

The creation of GoPro came during a surfing trip in 2002 by company founder and CEO Nick Woodman. Wanting to take pictures of his surfing activity, he developed a belt that attached to a waterproof 35-millimeter camera to strap around his wrist. That idea evolved into GoPro’s initial line of small wearable cameras.

Woodman founded GoPro in 2002 in San Mateo, Calif., but didn’t introduce its first high-definition video camera until 2009. Since its founding, GoPro has shipped more than 11 million cameras, according to the company.

It sells multiple products — the GoPro Hero series — ranging in price from $129 to $499, and a broad line of accessories.

Rivals Face Multiple Barriers

With the market expanding fast, GoPro competitors are stepping up their game.

“The primary risk for GoPro is competitors coming out with better action cameras at lower price points,” said Shebly Seyrafi, analyst at FBN Securities. “But current products from rivals don’t stack up to GoPro’s Hero lineup.

The second place leader, Ion America, is a privately held company based in Moorestown, N.J.

Ion introduced its first action camera, called Air Pro, in Japan in March 2012, and to the U.S. later that year.

In less than two years it managed to grab a 12% market share, with a product lineup targeted at specific markets. It has an action camera designed for auto enthusiasts, and one for hunters and fisherman. Another camera is designed to analyze the performance of golfers, baseball and tennis players. Last month, it entered the growing home connectivity market with a camera system called Ion the Home.

Company founder Giovanni Tomaselli has been designing cameras for 15 years.

“We’re not just going after the sports camera space,” said Tomaselli. “This is not a one-size-fits-all market.

Ion has a retail presence in over 6,000 stores, including Best Buy (BBY) and Walmart (WMT).

Ion’s business partners include Major League Baseball and the Seattle Seahawks football team.

“The reason why some people partner with us and not GoPro is we have a better product,” Tomaselli said.

Sony has introduced several action cameras at various price points, including the AS100V. While the reviews are generally positive, GoPro maintains its advantage in various categories, Seyrafi said.

Garmin’s Virb camera is a “strong contender” because of its rugged design and good video quality, Seyrafi said, but GoPro’s Hero3 Black takes better video.

Brad Erickson, analyst at Pacific Crest Securities, in a research report last month held a similar view.

“GoPro cameras are much more popular than the competition,” Erickson wrote. “We’ve been running periodic sell-through checks on the action camera market for roughly the past year since Garmin launched the Virb in the second half of 2013,” he wrote. “We have consistently found no competitor that even came close to GoPro from a sell-through or even salesperson awareness perspective.

Polaroid recently introduced Cube, an ultra-small video camera for $99, priced $30 below GoPro’s low-end model. But it’s not something GoPro needs to be concerned with, according to various reviews.

“There is a portion of population that can’t afford a GoPro and the Polaroid Cube might appeal to them,” said Pachter. “But if you’re going to buy something at the same price point they’ll want a GoPro.

“We’ve seen some competitive products in the last three months but I don’t think they are game-changing products,” said Seyrafi. “GoPro has the momentum.

A Multimedia Brand?

The next step — one of many for GoPro, is to push the name itself to become a media brand. Unlike other media content providers who pay to produce content, GoPro aims to leverage content produced mainly by its customers, facilitating broader distribution via YouTube.

The effort includes a 30-person team concentrated on poring through user content. Distribution channels, in addition to YouTube, include a deal with Microsoft’s Xbox as well as a GoPro channel on Virgin America flights.

Xbox 360s and Xbox Ones include a GoPro app, which enables viewing of GoPro films as well as shopping for the cameras and equipment.

Investors have been part of GoPro’s fan base as well. On July 26, its IPO priced at 24 and exploded 31% on its first day of trade. Shares peaked at 98.47 on Oct. 7 and, on Friday, traded 222% above their IPO price.

The company reported third-quarter earnings on Oct. 3 that topped Wall Street estimates. Revenue rose 46% to $280 million, with operating income of $27.6 million and net income of $18 million. About 73% of revenue came from the Americas.

On Sept. 29, GoPro launched its top-of-the-line Hero 4 Black camera, with a retail price of $499. It also introduced an entry-level model priced at $129.

The company also recently introduced Fetch, a camera harness for dogs, and updates to its GoPro Studio software, a video editing tool, for the desktop and smartphone.

A planned, large-scale merchandising rollout aims to triple its retail presence at Best Buy. GoPro claims it has 4.6 million “active customers” with which it is in regular contact.

In addition, the company has 8 million followers on Facebook, and almost 3 million more on Instagram.

“They’re competing with (themselves) in a sense,” said Seyrafi, adding that GoPro has to maintain efficient manufacturing, shipping, new product development and profitability to stay ahead of the curve.

“If pricing becomes aggressive due to competition, that could hurt profit margins and the stock, but we’re not seeing that happen yet,” he said.