GoPro announced this week that it is building a drone, which of course is a natural extension of its core action camera business. After all, many drones already carry the company’s cameras, so why not make a GoPro-branded drone?
Interestingly, recently we considered whether Google or Amazon might be the drone market’s GoPro, but it’s possible that GoPro could solidify a commanding position in the market itself.
Alight Capital Management declined 1.3% on a net basis for the first quarter of 2022, according to a copy of the firm's quarterly update, which ValueWalk has been able to review. Short positions offset most of the losses on the long side of the portfolio. The long/short equity fund exited the quarter with a net Read More
The power of a premium brand
But this is about more than just drones or cameras. This is about developing a strong ecosystem to support products—much in the same way Apple has done with iOS, which supports repeated iPhone refresh cycles each year. The question investors must consider right now is whether GoPro can be successful at this endeavor.
Apple has built itself as a premium brand with premium products, and the products really came before the build-out of the iOS ecosystem. Apple first got consumers hooked on the iPhone and then convinced them to stick with it and keep buying the newest models by building out its ecosystem.
GoPro dips after one-day rally
Shares of GoPro rallied on Thursday following the drone announcement and Google’s revelation of a partnership with GoPro. Together, the two companies developed a spherical camera rig that’s made up of 16 cameras. The rig combines the videos shot by each of the cameras into one 3D, experiential video.
GoPro building an ecosystem
There’s no question that GoPro must expand into other product categories to be more than just a temporary blip in the technology industry. Because of how large the drone industry will likely get and the pace at which it is growing, it’s not only logical for GoPro to build its own drone but also a wise decision.
Management revealed some time ago that their vision for the camera maker is to transform it into a media company by building a lucrative video content distribution platform. Since then, analysts have debated whether this strategy will be successful. It’s beginning to look more likely that it will—but only if GoPro can keep turning out products to feed into that platform. An ecosystem only becomes valuable when it creates stickiness for the products that are meant to support it.
GoPro learning from Apple?
Another element of the ecosystem that GoPro is building out is software, which again is a wise move on the part of management. Some analysts have emphasized how important it is for the company to lead the market in cutting-edge video editing software, and clearly management agrees. In fact, when they announced the new editing software last week, they called it their iTunes.
Indeed, it seems as if they have taken some lessons from Apple in terms of building out an ecosystem that creates stickiness in products.
Drone market growing fast—but exactly how fast?
Barclays analysts Joseph Wolf and Brian Finneran noted that the Consumer Electronics Association projects a 55% growth rate in the drone market this year, which would be $130 million in revenue. That certainly isn’t a lot right now, but within five years, the organization expects drone sales to surpass $1 billion.
Other estimates put these numbers much higher currently, however. Raymond James analyst Terry Tillman and team said the consumer drone market may be closer to $500 million to $1 billion in size already and growing at 100% year over year. They cite publicly available data from Parrot.
The Barclays team expects GoPro to speed up the growth of the drone market because of its “strong brand equity and devoted following,” and Stifel analyst Jim Duffy and team agree. The company’s quad-copter won’t be out until early next year, so we won’t see any revenue from the drones until next year.
GoPro to receive a big boost from drones
The Stifel team also places a much higher estimate on the drone market compared to the Barclays team. They believe the consumer drone market for the $300 to $3,000 price range will be $1.2 billion this year and will at least double that next year.
If GoPro takes a share of in the mid- to high-single digits of this segment of the drone market, they see between $150 million and $200 million in annual incremental revenue for next year for the quad-copter, assuming it launches in the first quarter.
They believe margins will be similar to those of cameras and emphasized that GoPro’s key differentiation is going to be in the area of software. With a full year of revenue, they estimate a benefit of 20 cents to 30 cents per share in incremental earnings next year.