GoPro Investment Thesis

GoPro Inc.
Recommendation: Buy
CMP: $8.80
Upside: 23%
Date: 23rd May16
Investment Thesis Summary
TP: $10.83
Highly Undervalued: GoPro's share price has declined by 86% over the last one year due to continued lackluster
performance resulting from delay in launch of new products and rise of low-end competitors. However, these issues do
not impact the secular tailwind from rising consumer preference for action cameras which are projected to grow at
18.3% over the next 5 years. At the current trading multiples, the market is implying a negative perpetual growth and
we expect that certain events (new product launches, possible acquisition target news) could trigger the market price to
move towards the intrinsic price.
Margin of safety: In the worst case scenario we expect GoPros market share in the action camera category to fall to
20% (FY 2025) from the current 63% (FY 2015) market share implying an intrinsic value of $7.8 which is at a discount
of 17% to CMP. Further we have not included any cashflow from new product lines (karma drone and VR
headsets) for arriving at the target price.
Best play on the action camera space: Action/POV cameras are projected to grow at a CAGR of 18.3% over 201519 due to increase in the adoption rates in APAC and EMEA markets and replacement in the US market and GoPro is
well positioned to capitalize on this trend due its brand, market leadership position and its significant R&D spend ($223
mn in FY15) leading to innovative product lines (Karma (Drone) and VR products to be launched in FY16).
Competition fears overdone: GoPros major competitors Sony, Garmin, iON entered the action camera market in
2012-13. However they have been unable to make inroads into the action market camera due to strong consumer
preference for GoPro due to GoPros branding and superior performance of its products.
Ticker
GPRO
Year Founded
2004
52 W H/L
65.49/8.62
Market Cap
$1,202 mn
Cash & Cash Eq
$279.67 mn
Debt
Enterprise Value
$986.43 mn
Shares o/s (mn)
136.6 mn
Revenue (2015)
$1,620 mn
EBITDA (2015)
$83.7 mn
ROCE (3Y Avg)
19%
ROE (3Y Avg)
36%
EV/EBITDA
12x
P/E (LTM)
35x
Equity Value and Share Price

Enterprise Value ($ mn)
Less: Preferred Securities
Less: Noncontrolling Interest
Plus: Cash and Cash Equivalents

Equity Value ($ mn)
Less: Value of Options
Equity Value
No. of outstanding shares (mn)
Estimated Intrinsic Value
Market share as on 2014
Source: Industry report
$1,263.3
Less: Total Debt
$279.7
$1,543.0
($64.01)
$1,479.0
136.6
$10.83
Company Overview
GoPro, Inc., founded in 2004 by Nick Woodman (CEO) and headquartered in California, offers HERO line of wearable cameras and accessories
that enable consumers to capture content while engaged in a range of activities. In addition, the company offers GoPro Studio, a video editing tool
that allows users to create professional quality videos from their GoPro content. GoPro, Inc. markets and sells its products through retailers and
distributors, as well as through its website in the United States and internationally. In Jan'16, GoPro laid off 7% of its staff due to less than
anticipated growth in topline. In Q1 2016, GoPro announced a revised marketing strategy to offer action cameras at three distinct price points
HERO Session ($199), HERO4 Silver ($399), HERO4 Black ($499). GoPro is expected to launch the Karma drone and VR headsets in the second
half of 2016.
Financial Projections
Particulars
FY14
Sales (mn)
FY15
FY16E
FY17P
FY18P
FY19P
FY20P
FY21P
FY22P
FY23P
FY24P
FY25P
$1,394.2 $1,620.0 $1,438.8 $1,645.4 $1,913.1 $2,105.3 $2,295.7 $2,480.4 $2,655.1 $2,815.6 $2,929.5 $3,018.7
%Growth
41.4%
16.2%
(11.2%)
14.4%
16.3%
10.0%
9.0%
8.0%
7.0%
6.0%
4.0%
3.0%
EBITDA (mn)
$205.0
$83.7
$74.4
$85.0
$98.9
$129.9
$164.6
$202.6
$243.4
$258.1
$268.6
$276.8
Net Income (mn)
$128.1
$36.2
$45.7
$43.9
$42.9
$56.4
$73.3
$97.2
$119.7
$124.1
$127.3
$129.4
%EBITDA Margin
Total Shipments (mn units)
% Market Share
Average Selling Price ($ / unit)
14.7%
5.2%
5.2%
5.2%
5.2%
6.2%
7.2%
8.2%
9.2%
9.2%
9.2%
9.2%
5.18
6.58
7.60
8.78
10.20
11.23
12.12
12.84
13.33
13.57
13.52
13.19
67.3%
63.3%
45.1%
43.2%
41.8%
40.3%
39.3%
38.5%
38.2%
38.2%
38.2%
38.6%
$269
$246
$257
$257
$257
$257
$257
$257
$257
$257
$257
$257
10.8
7.9%
8.4%
8.9%
9.4%
9.9%
Recommendation
1.8%
11.53
10.60
9.82
9.13
8.54
2.3%
12.23
11.17
10.28
9.52
8.87
Perpetuity Growth Rate

2.8%
13.06
11.84
10.83
9.97
9.24
Estimated Value Per Share ($)

3.3%
14.08
12.64
11.47
10.50
9.68
3.8%
15.35
13.62
12.24
11.12
10.18
ASP ($)*
WACC
Estimated Value Per Share
Sales Growth: We have assumed a 8.6%

CAGR growth for FY16-25 implying a 38%
market share in FY25 viz-a-viz the current
market share of 69%
Average Sales Price: For FY16, the ASP is
line with companys guidance and has been
assumed to be constant till FY25
EBITDA Margin: EBITDA Margin is
expected to improve due to decrease in
R&D and stock-based compensation as % of
sales.
$
$
$
$
$
10.7
240
250
260
270
280
20.00%
5.92
6.13
6.34
6.55
6.77
30.00%
8.60
8.97
9.34
9.72
10.10
Market Share (FY25)

40.0%
11.69
12.25
12.81
13.38
13.96
50%
15.14
15.90
16.67
17.45
18.25
60%
18.89
19.87
20.87
21.89
22.92
* Average Selling Price
We recommend a long on GoPro Inc. with a target price of USD 10.83 which represents a potential 23% upside. The target price has been arrived
at by considering cashflow only from the action camera segment and a decline in the market share from present 63% to 37% by 2025. Potential
success from the soon to be launched Karma (drone) and VR products add further comfort to the recommendation. GoPro represents a good
opportunity to invest in an entrepreneur led, strong consumer brand technology company.

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GoPro Inc.

Investment Thesis Summary

Cash & Cash Eq

Shares o/s (mn)

ROCE (3Y Avg)

ROE (3Y Avg)

Equity Value and Share Price

Less: Preferred Securities

Less: Noncontrolling Interest

Plus: Cash and Cash Equivalents

Less: Total Debt

Net Income (mn)

Perpetuity Growth Rate

Estimated Value Per Share ($)

Estimated Value Per Share

Sales Growth: We have assumed a 8.6%

Market Share (FY25)

* Average Selling Price

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