Advancements in smartphone technology have made GoPro cameras irrelevant to 'anyone beyond hardcore sports enthusiasts or professional creators,' one analyst says

GoPro's annual sales stood at at $1.62 billion in 2015, according to FactSet. Last year, they were at $651.5 million.

GoPro's struggles as a standalone company came down to too much competition and too many smartphones.

After a 12-year drop in the action-camera maker's stock, those struggles culminated on Tuesday with the announcement of a merger deal between GoPro $(GPRO)$ and the privately held optical-technology company Starman Optical. The deal, the companies said, would position GoPro to "expand into AI data-center, government, defense and aerospace markets."

Shares of GoPro took off following the company's 2014 IPO on hopes it could ride a boom in social media and user-generated content to greater profits. But with every new rival - and every smartphone update featuring more sophisticated camera technology - GoPro became a little less relevant.

"Since the IPO, phone technology has developed dramatically to the degree that GoPros have become extraneous devices for anyone beyond hardcore sports enthusiasts or professional creators," Grace Harmon, a tech analyst at eMarketer, told MarketWatch over email.

GoPro shares saw some momentum Monday thanks to a recent report discussing a popular YouTuber's stake in the company, and the stock climbed sharply on Tuesday following the merger news. It rose nearly another 40% in Wednesday's session, to close at $1.69 a share.

The stock is well off highs of more than $90 reached in 2014. GoPro's annual sales peaked at $1.62 billion in 2015, according to FactSet. Last year, sales stood at $651.5 million. The company now has a market capitalization just north of $300 million.

GoPro launched in 2004. In its IPO prospectus about a decade later, the company pitched itself as a way for sports enthusiasts to share their adventures and passions. After GoPro went public, Nicholas Woodman, its founder and CEO, described the company as a global brand with room to expand. He also described its broader ambitions to become a media company that could make money off of GoPro users' video content, as more people used the cameras to record everything from whitewater-rafting trips and surfing outings to journeys into outer space.

Back then, its Hero 3+ Black Edition camera was driving sales. During the company's first earnings call in 2014, Woodman said its goal was to help its users "create, share and ultimately to enjoy GoPro content."

"This results in a virtuous cycle that has gone on to help make our capture devices among the best-selling in the world, where viral viewership of GoPro-enabled content drives awareness and adoption of GoPro products and services," he said at the time.

But not long after, its Hero4 Session camera flopped, as shoppers balked at the price. Then, its Hero5 ran into production issues. It rolled out Karma drones in an effort to expand beyond cameras - but announced a recall shortly after, when some users said the devices were losing power while in use. Following those stumbles, GoPro shuttered its entertainment division to cut costs, as advertising and sponsorship revenues didn't pan out.

Meanwhile, competition in the camera world grew from the likes of Sony $(SONY)$, TomTom (NL:TOM2), DJI and Insta360 (CN:688775). Harmon also said GoPro suffered from "a continued reliance on users upgrading their hardware as smartphones narrowed GoPro's competitive edge."

GoPro's annual sales fell from 2016 to 2018, ticked higher in 2019, and then fell again in 2020, according to FactSet. They rebounded briefly in 2021 - helped by the pandemic-era outdoors boom and subscription offerings - but have fallen since.

In May, GoPro announced a review of strategic alternatives, including a possible sale or merger. Under the terms of the merger deal with Starman announced on Tuesday, GoPro shareholders will get an aggregate cash payment of $285 million, or $1.14 a share, and will hold roughly 10% of the outstanding shares of the company.

GoPro's roughly $92 million in outstanding debt will be repaid in full upon the deal's closing, expected by the end of this year. GoPro will remain a publicly listed company and "will continue to fully support its existing consumer products and its subscription and cloud platform," the companies said on Tuesday. The announcement also noted GoPro's imaging and optical technology, as well as its more than 2,500 U.S. patents.

Woodman, in Tuesday's announcement, said the merger would help GoPro become a "leading American imaging and optical-solutions company, addressing important areas of national security related to cameras, optics and AI infrastructure."

A few days earlier, GoPro found fans elsewhere. On Sunday, Bloomberg reported that Mark Fischbach, a filmmaker and YouTube personality with nearly 40 million subscribers, had become the GoPro's biggest shareholder after amassing an 8.5% stake in the company. The stake was disclosed in a filing on Aug. 20.

Fischbach, who directed the horror film "Iron Lung" and is known as Markiplier on YouTube, told Bloomberg that he invested in GoPro as part of a broader plan to make it easier and more affordable to make films.

In a recent video, Fischbach said he had used GoPros during his entire time as a YouTube creator, and praised GoPro's new, interchangeable-lens camera.

"I saw the stock and where it was. I was like, 'That seems undervalued,'" Fischbach told Bloomberg. "It's just something I've been cooking in the background. I want the company to succeed."

-Bill Peters