gopro stock pitch
TRANSCRIPT
Shay BathejaNick KimMelissa ZhouAndrew Morton (GPRO) Target Price: $59.56
1. Industry Overview
2. Company Overview
3. Thesis Points: Shorting GoPro
4. Valuations
5. Risks
Agenda
1
Industry Overview
GoPro
Extreme sports
Cameras
Technology
2
Company Overview
Value Proposition• High Quality, dynamic, shareable content• Wearable/attachable/mountable video cameras
IPO: 6/26/2014• Share Price: $24.00• Shares Offered: 17.8M• Offer Amount: $427M
Company Overview
3
Stock Overview Stock Overview
Market Cap: 9.65BShare Price: $79.15 52-Week Range: $28.65 – 98.47
P/E (ttm): 212.2Diluted EPS (ttm): $.37PEG: 3.03
4
GoPro keeps trying to expand within the same limited market
Increased competition will squeeze margins and not sustain growth rates
Media ventures will not bring the revenue required to justify valuation
GoPro’s Overvaluation Makes it an Attractive Short
5
• 80 million Millenials with disposable income• Targets specifically action sport users • 6.12% own a GoPro
GoPro Other (Sony, Contour, Garmin) Never heard of GoPro0
10
20
30
40
50
60
From which company would you rather buy an action camera?
Peop
le (%
)Domestic Market is Limited-VAR
6
• “For starters, it doesn’t have a viewfinder. But people who want to use it for more mundane things, like capturing a scene, will want to know what the picture looks like before they record for a while.” - Katie Boehret (First time user)
• “This is decent for underwater shots, or more rugged outdoor stuff that you don't want to use an iPhone for, but I have a hard time justifying this as it just doesn't give me much over my iPhone.” – El Duque (Amazon customer)
• “The GoPro Hero is very inexpensive, but this particular model sacrifices a lot to bring the price down. With Micro SD expandable to ONLY 32 GB, and the ability to record in 1080p, you should bring a few SD cards if you want to capture several shots.” – Gary Beach (Amazon customer)
Low Price Model Lacks Appeal for Entry Level Users
7
• Doubled number of countries in which GoPro is distributed
• Distributors sell to local retailers
• Dependent on 10 retailers for 50% of revenue
Revenue by Geography
2014% of revenue
2013% of revenue
Americas 73.2 48.1
Europe, Middle East, Africa
18.2 37.6
Asia and Pacific Area
8.6 14.3
International Growth is not Occurring
8
GPS Waterproof
Picture Quality
Battery Life
Field of Vision Price
Contour 1080p3-3.5 hours 170° $200
Sony 1080p 2 hours 170° $400
Polaroid Cube 1080p 1.5
hours124° $100
GoPro 4K30p 1.5 hours
170° $130-500
Other Companies are Coming Out with Cheaper, Similar Products
9
High Competition and Substitution Among Suppliers
• Sony, Contour, Garmin, and others offering similar products with competitive prices
• Buyer power increases as prices must drop to compete
GoPro Must Decrease Profit Margins to Stay Competitive
10
• Revenue growth: 263% to 25%• Gross margins: 52% to 44%• Sacrifice margins to preserve market share
2011 2012 2013 2014 2015 2016 2017 2018 20190.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Forecasted Gross Margins
GoPro’s Growth and Margins are Shrinking
11
• Monetizing user content through media
• Maintaining brand equity
The Growth of GoPro is Based on Uncertain Variables
12
Current Efforts
Xbox Channel YouTube GoPro
SoftwareMedia
Partnerships
GoPro is Looking to an Additional Revenue Source for Growth in Media
13
Maker Studios
• Multichannel Network (YouTube)• Sold to Disney for $1 billion• 50k channels and approximately 5.5 million page views a
month
Twitch
• Video Streaming Platform• Sold to Amazon for $1billion ($20 per user valuation)• Subscribers and ad revenue
Benchmark Valuations of GoPro can be Based on Similar Acquisitions
14
Potential Revenue Models for Media
15
•Comparable Methods: $7.60/1000 viewers•Miniscule revenue
Ad Revenue
•GoPro users already own footage
Digital Licensing
•Access to online streaming, content management system•Monthly Fee
Subscription Service
• YouTube is simply too strong
• Users paying for content is a hard sell
• A new streaming platform such as Twitch can’t reach the same milestones
GoPro’s Media Aspect is too Speculative
16
• Low barriers to entry
• Cheaper, higher quality cameras
• Rugged/adventure smartphones
GoPro’s Niche Market will Eventually Saturate
17
Avg. EV/Revenue for Mature
Tech Companies:
2.16Revenue of 4.34 Billion
GoPro cost of $229 per
unit
18.89 Million Units w/o
Media Revenue
14.53 with
0.0%
50.0%
100.0%
150.0%
200.0%
250.0%
300.0%
Projected Revenue Growth
GoPro Enterprise Value Assumes Unreasonable Sales Numbers
18
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 64.5 234.2
526.0 985.7
1,290.3 1,615.3
1,992.5 2,423.1
2,916.3
3,474.4
Projected Revenue (Millions)
Mature in 2019Revenue: $3474M
Enterpris
e Valu
e: $7504M
Share
Price:
$59.56
Using Projected Revenue to Reach Fair Enterprise Value
19
Second Offering Indicates Fear of Price Fall after Lockup
• GoPro to sell $800 M in shares
• Those participating in sale will extend lockup by 90 days
• Indicates fear of falling price
20
GoPro is Very Overvalued Compared to Competitors
GoPro P/E: 212.2Competitor Avg: 17.7
GoPro EV/EBITDA: 93.8Competitor Avg: 7.85
21
• CEO Nick Woodman’s actions
• Media venture success
• Effective margin control
Trends to Watch
22
Questions?
Ratio GoPro Apple NikonSamsun
g Garmin Avg.
P/E 211.09 17.7 13.22 6.04 33.83 17.70
EV/EBITDA 93.8 11.11 5.27 2.76 12.26 7.85
Competitor Valuations
Appendix A
YearUnits Sold
(M) Revenue ($M)2011 1.14 234.22012 2.31 5262013 3.84 985.72014 5.02 1290.32015 6.32 1,615.28 2016 7.62 1,992.51 2017 8.92 2,423.06 2018 10.22 2,916.30 2019 11.52 3,474.41
Forecasted Units Sold
Appendix B
Year 2014 2015 2016 2017 2018 2019
Revenue
1,290.3
1,615.28
1,992.51
2,423.06
2,916.30
3,474.41 Growth
(%) 24.8% 25.2% 23.4% 21.6% 20.4% 19.1%Gross Profit
574.2
681.89
800.29
923.55
1,051.76
1,181.82
Gross Margin
(%) 44.5% 42.22% 40.17% 38.12% 36.07% 34.02%
SG&A
294.98
345.04
395.73
444.90
491.72
521.16 SG&A
margin (%) 22.9% 21% 20% 18% 17% 15%
R&D
135.48
201.91
283.93
381.63
481.19
573.28 R&D
margin (%) 10.5% 12.5% 14.3% 15.8% 16.5% 16.5%
EBIT
143.7
134.9
120.6 97.0
78.9
87.4
EBIT margin
(%) 11.1% 8.4% 6.1% 4.0% 2.7% 2.6%
Taxes
53.01
49.97
44.05
36.75
29.24
32.44 Tax rate
(%) 37% 37% 37% 38% 37% 37%EBIT*(1-t) 90.7 85.0 76.6 60.3 49.6 54.9Add: D&A 14.6 18.2 21.8 25.4 29 32.6
Less: Capex 23.1 25.6 28.1 30.6 33.1 35.6Less:
Increases in NWC
20.72
7.75
12.83
14.24
15.38
16.56
Free Cash Flow
61.50
69.82
57.44
40.82
30.14
35.38
Forecasted Financials
Appendix C
Year 2015 2016 2017 2018 2019
Media Revenue 6 14.4 25.2 48 86.4Subs on YouTube
channel (M) 3 3.6 4.2 4.8 5.4Conversion to
GoPro Service (%) 10% 20% 30% 50% 80%
Media Service Projections at $20/user per year
Appendix D
Projected Mature Revenue ($M)
Industry EV/Rev Multiplier
EV($M)
Share Price ($)
3,474.41 2.16
7,504.7
4
59.56
Cost of Equity 7.40%Long Term
Growth Rate 3.00%Terminal Value 828.2
Net Present Value 774.77
Ticker MSFT BBRY AAPL SSNLF SNE GRMN CSCO Avg
EV/Rev 3.76 1.25 3.68 0.6 0.39 3.32 2.12 2.16
Discounted Cash Flow Industry EV/Revenue Multiplier
Valuation
Appendix E