The unusual risk to GoPro’s IPO: its own customers injuring themselves

June 25, 2014
June 25, 2014

GoPro, a maker of popular action sports cameras, is going public, and is expected to price its initial public offering of stock with large institutional investors tonight.

The company makes most of its money from selling camera hardware and has managed to grow revenues—an impressive achievement in a market that’s in structural decline, with other camera makers suffering as smartphone cameras get ever better. But it also wants to fashion itself as a media company. It has a channel on Virgin America’s in-flight entertainment system and plans to start selling advertising on its highly popular YouTube channel. Many videos shot using its products have gone viral.

Though the offering is relatively small—the company wants raise up to $427 million in fresh capital—people in the markets are watching it closely. As the Wall Street Journal (paywall) reports, it’s the biggest consumer-electronics IPO in a long time. As for any company, a lengthy section of GoPro’s IPO filing outlines the potential risks it faces. Unlike most companies, GoPro’s contains the unusual risk (p. 34) that its customers might injure themselves by performing daredevil stunts to impress people, which could damage its brand and even lead to its cameras being banned. Here’s the excerpt:

Consumers use our cameras and accessories to self-capture their participation in a wide variety of physical activities, including extreme sports, which in many cases carry the risk of significant injury. We may be subject to claims if consumers are injured while using our products. Although we maintain insurance to help protect us from the risk of any such claims, such insurance may not be sufficient or may not to apply to all situations. Similarly, proprietors of establishments at which consumers engage in challenging physical activities could seek to ban the use of our products in their facilities to limit their own liability. In addition, if lawmakers or governmental agencies were to determine that the use of our products increased the risk of injury to all or a subset of our customers, they may pass laws or adopt regulations that limit the use of our products or increase our liability associated with the use of our products. Any of these events could adversely affect our brand, operating results or financial condition.

Almost all of the videos on the GoPro YouTube channel are dangerous stunts performed by professionals, although content uploaded by other users includes surfing wipeouts and close encounters with sharks. Even though the latter is probably a hoax, one gets the sense that it’s only a matter of time before something goes horribly wrong.

Its an unusual risk—but truth be told, a bigger worry for investors is probably that the shares may be overvalued. As the Journal points out, if the deal prices at the top of the expected range, the company would have a higher price-to-earnings multiple than Apple. The other potential threat is more established camera makers, like Nikon or Canon, into action cameras. But GoPro has a pretty big lead on them.

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