GoPro Inc (NASDAQ:GPRO) remains one of the hottest stocks on Wall Street despite investors’ recent disgust about the price of its secondary offering. Shares bounced back going into Black Friday as investors bet on strong holiday quarter sales. So now that the digital camera maker’s got more cash in hand, what will it do? Talk of acquisitions is now circulating through Wall Street.
Possibilities for GoPro’s new cash
In a post on Seeing Alpha, Diamond Technology Management suggested that GoPro might seek to acquire some advertising technology using the proceeds from the secondary offering. Management has discussed plans to grow their advertising and sponsorship revenue. One of their most recent initiatives was launching an Xbox One channel. Additionally, GoPro is monetizing traffic on its YouTube and Virgin America channels.
The ExodusPoint Partners International Fund returned 0.36% for May, bringing its year-to-date return to 3.31% in a year that's been particularly challenging for most hedge funds, pushing many into the red. Macroeconomic factors continued to weigh on the market, resulting in significant intra-month volatility for May, although risk assets generally ended the month flat. Macro Read More
The firm suggests that currently advertising acquisitions are “very attractive,” noting that Yahoo! Inc. (NASDAQ:YHOO) and Twitter Inc (NYSE:TWTR) each recently made an acquisition in the space. They do note, however, that such acquisitions will probably take years to be accretive to shareholders and will probably “stuff GoPro’s clean balance sheet with goodwill.” As a result, they suggest that GoPro stock will decline in the near term if the company does make an advertising acquisition.
Diamond Technology also suggests that GoPro might be interested in acquiring hardware startups in order to set its own products apart from those made by competitors. The firm suggests anything from motherboards to 3D displays as possible targets for interest from GoPro.
GoPro spurs short interest
Currently short interest in GoPro is pretty high, as many short-sellers expect the company’s growth to slow down. In addition, Diamond Technology states that the company’s stock value is high at eight times revenue and 57 times forward revenue. The firm believes it’s unlikely GoPro will be an acquisition target for any company, including Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG), as was suggested this week.
The firm suggests that GoPro may be a good candidate for shorting if shares increase during the holiday shopping season. Additionally, Diamond Technology said the secondary offering also appears to support the short thesis, noting that investors are beginning to cash out and that the acquisitions GoPro may pursue will likely be costly.
However, the firm suggests that investors may want to wait until after the holiday shopping season to short the stock because GoPro’s cameras could be a popular holiday gift.