The stock of GoPro (GPRO) is hotter than its wearable action cameras. After its IPO at $24 a share the stock shot up to $31.34. With about 123.1 million shares outstanding, this gives the company a valuation of $3.86 billion.
GoPro CEO Nicholas Woodman has successfully pulled off alchemy by selling a gadget company stock as a media company to the investors. The alchemy is now worth about $3 billion out of the $3.86 billion valuation of the company. For comparison, take a look at a well established and respected camera company Nikon. In 2013, Nikon had revenue of $11 billion and trades at a price-to-sales multiple of about 0.6. GoPro, with revenue of about $1 billion, is approaching a price sales multiple of about 4.
Gadget companies traditionally receive low multiples because gadgets get commoditized, and the company must keep coming up with hit after hit. It was not long ago that the Flip Video camera was the hottest video camera on the market. Cisco (CSCO) paid $590 million to buy Pure Digital Technologies, the maker of Flip Cams. Two years later Cisco wrote down all of its investment and shut down the business. Cisco simply could not compete with copycats and camera phones.
Even though GoPro hardly derives any material revenue from content, its stock has been sold as that of a media company. GoPro has been successful among people who like to strap a camera on their helmet, chest, wrist, bike, or car and take a video of themselves performing action-sports.