Catalysts:
Changing business model to DTC with GoPro.com, hence eliminating the middleman, and improving margins
Subscriber count to GoPro.com increasing rapidly
Average Selling Price (ASP) increasing rapidly
Possibility of returning cash to shareholders next year
Risks:
Rely on only one product and mobile phone cameras are more suitable for most people
Large increase in subscriber count for GoPro.com comes mostly from automatic one-year free subscription from purchase of camera → No certainty of renewal
70% of votings rights in the hands of CEO, Chairman, and founder of the company
Declining reveenues in recent years
Financial Analysis:
Massive increase in net income this year (and this quarter) was from a one-time tax benefit
Valuations:
My personal Biases:
Looks undervalued but skeptical of ability to shift business and grow revenues
Whole investment will depend on that business shift
Assumptions:
GoPro.com Revenues will grow annually by 15% in the next 5 years while the retail revenues falling by 5% per year
Gross profit margin gradually increasing to 43%
Pretax expenses 35% of revenues
Net income 75% of operating income
FCF 80% of net income
Discount rate of 13% for FCF
Terminal growth rate of 2%
Margin of safety of 20%
Exit Multiples based on P/FCF Ratio
Sales 20% higher in bull case and 20% lower in bear case
Shares outstanding stays the same
Conclusion
Looks overvalued
Only scenario where it is a good investment is in the case whereby the business shift is a success
Too speculative for me
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