GoPro (NASDAQ:GPRO) shares soared by 30% on Thursday in their debut on the NASDAQ, and they kept climbing today as investors pumped more and more money into the high-definition camera maker. GoPro's starting price was $24 a share.
Forbes contributor Nigram Arora says buying GoPro right now is nothing but speculation. He says CEO Nicholas Woodman has sold the camera company as if it is a media company. He notes that last year, established camera maker Nikon had $11 billion in revenue and traded at a multiple of .6. However, GoPro's annual revenue is around $1 billion but was trading at a price sales multiple of approximately four.
He says there's a good reason gadget companies like GoPro trade at lower multiples because gadgets always become commodities. Companies that make gadgets must keep coming up with new ones all the time. He noted that Cisco Systems (NASDAQ:CSCO) paid $590 million for Flip Video Camera (, which at one point was the market's hottest video camera) maker Pure Digital. Then two years after that, Cisco closed the business because it couldn't keep up with the rest of the camera industry.
Arora says although very little of GoPro's revenue comes from content, but that's what management emphasized, selling its stock as if it was a media company. The company is known for making wearable cameras for those who want to record their experiences.
Most of the videos users take using their GoPro cameras ends up on YouTube, which of course is owned by Google (NASDAQ:GOOGL) (NASDAQ:GOOG). The company said approximately 6,000 videos shot with its cameras are uploaded every day to YouTube. Management's pitch is that the company's content targets males ages 18 to 34, a demographic that advertisers find to be very attractive. However, Arora notes that it's difficult to successfully monetize large amounts of viewers.
GoPro versus Apple
Of course some gadget companies, like Apple (NASDAQ:AAPL), for example, trade at high multiples because they're more than just gadget companies. Arora says GoPro isn't like Apple though because it doesn't have a full ecosystem like Apple. In fact, he says GoPro's price sales multiple is even higher than Apple's, which he says is 3.