Shay BathejaNick KimMelissa ZhouAndrew Morton (GPRO) Target Price: $59.56

1. Industry Overview

2. Company Overview

3. Thesis Points: Shorting GoPro

4. Valuations

5. Risks

Agenda

1

Industry Overview

GoPro

Extreme sports

Cameras

Technology

2

Company Overview

Value Proposition• High Quality, dynamic, shareable content• Wearable/attachable/mountable video cameras

IPO: 6/26/2014• Share Price: $24.00• Shares Offered: 17.8M• Offer Amount: $427M

Company Overview

3

Stock Overview Stock Overview

Market Cap: 9.65BShare Price: $79.15 52-Week Range: $28.65 – 98.47

P/E (ttm): 212.2Diluted EPS (ttm): $.37PEG: 3.03

4

GoPro keeps trying to expand within the same limited market

Increased competition will squeeze margins and not sustain growth rates

Media ventures will not bring the revenue required to justify valuation

GoPro’s Overvaluation Makes it an Attractive Short

5

• 80 million Millenials with disposable income• Targets specifically action sport users • 6.12% own a GoPro

GoPro Other (Sony, Contour, Garmin) Never heard of GoPro0

10

20

30

40

50

60

From which company would you rather buy an action camera?

Peop

le (%

)Domestic Market is Limited-VAR

6

• “For starters, it doesn’t have a viewfinder. But people who want to use it for more mundane things, like capturing a scene, will want to know what the picture looks like before they record for a while.” - Katie Boehret (First time user)

• “This is decent for underwater shots, or more rugged outdoor stuff that you don't want to use an iPhone for, but I have a hard time justifying this as it just doesn't give me much over my iPhone.” – El Duque (Amazon customer)

• “The GoPro Hero is very inexpensive, but this particular model sacrifices a lot to bring the price down. With Micro SD expandable to ONLY 32 GB, and the ability to record in 1080p, you should bring a few SD cards if you want to capture several shots.” – Gary Beach (Amazon customer)

Low Price Model Lacks Appeal for Entry Level Users

7

• Doubled number of countries in which GoPro is distributed

• Distributors sell to local retailers

• Dependent on 10 retailers for 50% of revenue

Revenue by Geography

2014% of revenue

2013% of revenue

Americas 73.2 48.1

Europe, Middle East, Africa

18.2 37.6

Asia and Pacific Area

8.6 14.3

International Growth is not Occurring

8

GPS Waterproof

Picture Quality

Battery Life

Field of Vision Price

Contour 1080p3-3.5 hours 170° $200

Sony 1080p 2 hours 170° $400

Polaroid Cube 1080p 1.5

hours124° $100

GoPro 4K30p 1.5 hours

170° $130-500

Other Companies are Coming Out with Cheaper, Similar Products

9

High Competition and Substitution Among Suppliers

• Sony, Contour, Garmin, and others offering similar products with competitive prices

• Buyer power increases as prices must drop to compete

GoPro Must Decrease Profit Margins to Stay Competitive

10

• Revenue growth: 263% to 25%• Gross margins: 52% to 44%• Sacrifice margins to preserve market share

2011 2012 2013 2014 2015 2016 2017 2018 20190.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Forecasted Gross Margins

GoPro’s Growth and Margins are Shrinking

11

• Monetizing user content through media

• Maintaining brand equity

The Growth of GoPro is Based on Uncertain Variables

12

Current Efforts

Xbox Channel YouTube GoPro

SoftwareMedia

Partnerships

GoPro is Looking to an Additional Revenue Source for Growth in Media

13

Maker Studios

• Multichannel Network (YouTube)• Sold to Disney for $1 billion• 50k channels and approximately 5.5 million page views a

month

Twitch

• Video Streaming Platform• Sold to Amazon for $1billion ($20 per user valuation)• Subscribers and ad revenue

Benchmark Valuations of GoPro can be Based on Similar Acquisitions

14

Potential Revenue Models for Media

15

•Comparable Methods: $7.60/1000 viewers•Miniscule revenue

Ad Revenue

•GoPro users already own footage

Digital Licensing

•Access to online streaming, content management system•Monthly Fee

Subscription Service

• YouTube is simply too strong

• Users paying for content is a hard sell

• A new streaming platform such as Twitch can’t reach the same milestones

GoPro’s Media Aspect is too Speculative

16

• Low barriers to entry

• Cheaper, higher quality cameras

• Rugged/adventure smartphones

GoPro’s Niche Market will Eventually Saturate

17

Avg. EV/Revenue for Mature

Tech Companies:

2.16Revenue of 4.34 Billion

GoPro cost of $229 per

unit

18.89 Million Units w/o

Media Revenue

14.53 with

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

300.0%

Projected Revenue Growth

GoPro Enterprise Value Assumes Unreasonable Sales Numbers

18

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 64.5 234.2

526.0 985.7

1,290.3 1,615.3

1,992.5 2,423.1

2,916.3

3,474.4

Projected Revenue (Millions)

Mature in 2019Revenue: $3474M

Enterpris

e Valu

e: $7504M

Share

Price:

$59.56

Using Projected Revenue to Reach Fair Enterprise Value

19

Second Offering Indicates Fear of Price Fall after Lockup

• GoPro to sell $800 M in shares

• Those participating in sale will extend lockup by 90 days

• Indicates fear of falling price

20

GoPro is Very Overvalued Compared to Competitors

GoPro P/E: 212.2Competitor Avg: 17.7

GoPro EV/EBITDA: 93.8Competitor Avg: 7.85

21

• CEO Nick Woodman’s actions

• Media venture success

• Effective margin control

Trends to Watch

22

Questions?

Ratio GoPro Apple NikonSamsun

g Garmin Avg.

P/E 211.09 17.7 13.22 6.04 33.83 17.70

EV/EBITDA 93.8 11.11 5.27 2.76 12.26 7.85

Competitor Valuations

Appendix A

YearUnits Sold

(M) Revenue ($M)2011 1.14 234.22012 2.31 5262013 3.84 985.72014 5.02 1290.32015 6.32 1,615.28 2016 7.62 1,992.51 2017 8.92 2,423.06 2018 10.22 2,916.30 2019 11.52 3,474.41

Forecasted Units Sold

Appendix B

Year 2014 2015 2016 2017 2018 2019

Revenue

1,290.3

1,615.28

1,992.51

2,423.06

2,916.30

3,474.41 Growth

(%) 24.8% 25.2% 23.4% 21.6% 20.4% 19.1%Gross Profit

574.2

681.89

800.29

923.55

1,051.76

1,181.82

Gross Margin

(%) 44.5% 42.22% 40.17% 38.12% 36.07% 34.02%

SG&A

294.98

345.04

395.73

444.90

491.72

521.16 SG&A

margin (%) 22.9% 21% 20% 18% 17% 15%

R&D

135.48

201.91

283.93

381.63

481.19

573.28 R&D

margin (%) 10.5% 12.5% 14.3% 15.8% 16.5% 16.5%

EBIT

143.7

134.9

120.6 97.0

78.9

87.4

EBIT margin

(%) 11.1% 8.4% 6.1% 4.0% 2.7% 2.6%

Taxes

53.01

49.97

44.05

36.75

29.24

32.44 Tax rate

(%) 37% 37% 37% 38% 37% 37%EBIT*(1-t) 90.7 85.0 76.6 60.3 49.6 54.9Add: D&A 14.6 18.2 21.8 25.4 29 32.6

Less: Capex 23.1 25.6 28.1 30.6 33.1 35.6Less:

Increases in NWC

20.72

7.75

12.83

14.24

15.38

16.56

Free Cash Flow

61.50

69.82

57.44

40.82

30.14

35.38

Forecasted Financials

Appendix C

Year 2015 2016 2017 2018 2019

Media Revenue 6 14.4 25.2 48 86.4Subs on YouTube

channel (M) 3 3.6 4.2 4.8 5.4Conversion to

GoPro Service (%) 10% 20% 30% 50% 80%

Media Service Projections at $20/user per year

Appendix D

Projected Mature Revenue ($M)

Industry EV/Rev Multiplier

EV($M)

Share Price ($)

3,474.41 2.16

7,504.7

4

59.56

Cost of Equity 7.40%Long Term

Growth Rate 3.00%Terminal Value 828.2

Net Present Value 774.77

Ticker MSFT BBRY AAPL SSNLF SNE GRMN CSCO Avg

EV/Rev 3.76 1.25 3.68 0.6 0.39 3.32 2.12 2.16

Discounted Cash Flow Industry EV/Revenue Multiplier

Valuation

Appendix E