Look, let’s be crystal clear here – putting your money into a stock just because you think it might get acquired isn’t exactly what we’d call investing. It doesn’t align with our Foolish philosophy, which is all about sticking with proven, quality brands for the long haul. We’re not really into those all-or-nothing bets.
But, every once in a blue moon, you stumble upon a potential buyout candidate that seems undervalued by the market – not just because it’s a takeover target, but because the market might be missing the true potential of its brand, operations, and future prospects.
Enter GoPro (NASDAQ: GPRO). Now, this stock has had a rough time over the past decade, and it seems like the market has squeezed out most of its possible downside – and then some. There’s a chance that the market is not fully appreciating where GoPro could be headed in just a few years.
Hold on, though. Before you rush to add GoPro to your portfolio, know this – it’s not a perfect fit for everyone. In fact, for many investors, it might not make much sense at all. But if you’re getting a vibe of a potential high-risk/high-reward opportunity in the somewhat battered shares of GoPro, well, you’re not alone in thinking that way.
More hype than was ever merited
GoPro’s fall from grace since its much-hyped 2014 IPO is nothing short of staggering. Debuting at around $28 per share and swiftly soaring to nearly $100, the action camera company now finds itself teetering on record lows just above $2, marking a brutal 98% pullback from its peak.
So, what’s the root of this colossal letdown? Well, it’s not rocket science – turns out, the world didn’t have anywhere close to the demand for action cameras that GoPro confidently predicted. The expected revenue for this year, a modest $1 billion, pales in comparison to the dazzling $1.8 billion in 2015.
And here’s the kicker – analysts aren’t projecting any sales growth for the coming year either. The few who still bother keeping an eye on this stock anticipate a slim return to profit in 2025, but let’s be real, it’s not exactly a game-changer – at least, not yet.
Oddly enough, there’s a silver lining here, albeit an unconventional one. Consider GoPro’s allure to a potential buyer weighed against its rock-bottom cost. The whole shebang could be scooped up right now for a bargain. Even if a potential suitor is oblivious to this fact, there’s a chance the broader market might catch on.
It’s certainly affordable enough
Take a look at the latest figures, and GoPro’s market cap is hovering around $330 million – a far cry from the hefty sums we’re used to seeing in tech acquisitions. I mean, just look at Microsoft throwing around a cool $1 billion for Xandr in 2021 and Alphabet casually dropping the same amount on Raxium in 2022. Deals of that magnitude hardly raise an eyebrow these days; the acquirer just cuts a check, and it’s a done deal.
Now, before you get any grand ideas, it’s not as simple as snapping up GoPro for a mere $300 million and change. There’s more to consider – like the not-so-insignificant matter of debt and other financial obligations. GoPro’s staring down the barrel of about $280 million in short-term bills and another $133 million in long-term liabilities. But hey, it’s not all doom and gloom; GoPro’s got some impressive assets up its sleeve, nearly $1 billion worth, including inventory, accounts receivable, property, and even a tidy sum of $200,000 in cash.
Sure, we know assets tend to lose a bit of their shine when it comes to a sale, and liabilities have a sneaky way of being more than initially estimated. But even with that in mind, the net difference between GoPro’s assets and liabilities still outweighs its current market cap.
The brand and underlying tech are the prize
There’s a compelling argument for considering an investment in GoPro stock, driven not just by its current assets and operations, but by the immense potential in its brand name and cutting-edge technology. The focus isn’t solely on the company’s existing capabilities but on what the right hands could unlock for GoPro’s action camera brand.
Undoubtedly, GoPro’s technology stands out as top-of-the-line, consistently earning accolades within the action camera category. However, the missing piece seems to be a robust digital ecosystem that could transform the way GoPro users engage with their devices and share content. The current subscription-based video sharing and viewing platform is struggling, with only 2.5 million users and $100 million in annual revenue.
Drawing parallels with Alphabet’s success with Fitbit, there’s speculation that a suitor, possibly Alphabet or even Apple, could leverage GoPro’s brand and technology to create a revenue-generating platform. Alphabet’s strategy with Fitbit involved integrating the fitness devices into its broader online ecosystem, hinting at a similar approach for GoPro.
Alternatively, GoPro itself has been actively exploring avenues for growth. Initiatives like introducing lower-priced entry-level cameras and strategic acquisitions, such as the recent purchase of motorcycle helmet maker Forcite, indicate a proactive effort to expand its market reach.
While GoPro shares are considered relatively cheap considering the strides the company has made over the past decade, it’s essential to acknowledge the above-average risk and volatility associated with the stock. This might not be the right fit for every investor, and those considering it should maintain a relatively small position.
Ultimately, the case for investing in GoPro hinges on the belief that there’s untapped potential in the brand and technology. Whether it’s the company itself or an external suitor that catalyzes this transformation, there’s an intriguing opportunity for those willing to navigate the associated risks.
