Shares of action camera maker GoPro Inc. (GPRO) are trading down almost 6% today following a cautious article over the weekend by Barron’s Alexander Eule where he notes the risks that GoPro faces, like so many stand-alone tech gadgets, of being “subsumed by our phones.”
In his piece, titled “GoPro’s Thrill-Filled IPO Adventure May End Badly,” Eule says that GoPro risks suffering the same fate as that of the Flip video camera that was all the rage a few years. If you remember, Cisco (CSCO) bought Pure Digital Technologies, the maker of the popular Flip Video camcorders for nearly $600 million in 2009, only to watch the camera quickly lose its appeal once it became easy to shoot and upload videos on the iPhone and other smartphones.
Eule [via Barron’s]:
“IN SOME WAYS, THE EXCITEMENT over GoPro is a quaint return to pre-smartphone days. It’s hard to find stand-alone gadgets that haven’t been subsumed by our phones. GoPro, though, still risks suffering a similar fate. The cautionary tale is Flip, the groundbreaking camera that Cisco Systems bought for $590 million in 2009. The Flip was a miniature marvel, bringing the world high-definition home videos from a device that easily fit in a back pocket. Nifty idea, but it was a feature, not a product, as Apple’s iPhone soon made clear. Cisco shuttered the Flip business just two years after its purchase.”
GoPro shares went parabolic when debuted on June 25 after having the IPO price set at $24. The stock jumped 31% on its first day of trading one and spiked to a high of $49.90 a share. GoPro is up 60% since its initial public offering. The company has a market cap of $4.5 billion, meaning that the shares now trade at about 50x its FY2015 earnings, higher than Garmin’s (GRMN) 19.50x which has a market cap of nearly $11.5 billion. The company’s stock also trades at nearly 100x its diluted EPS over the past 12 months.
Now, the rationale behind such high multiples is that GoPro is a very high growth company, so the expectation is that this ratio will come down rather significantly in the coming years. But as USAToday’s Matt Krantz points out “investors are assuming the company can evolve from being a maker of cameras into some sort of video production company, but that’s just a pipe dream at this point.”