Why GoPro's Quadcopter Has $17.50/Share Upside (And Could Boost Ambarella)

Dougherty & Company LLC commented on Buy-rated GoPro Inc. (NASDAQ: GPRO) in an update about the company's newly announced "Quadcopter Drone."  

The action camera company's CEO Nick Woodman announced on Wednesday the release of the all new GoPro quadcopter, which will be released in the first half of 2016.

Related Link: GoPro Shares Flying High Alongside The 'Quadcopter'

According to Charles Anderson of Dougherty, GoPro could "extend its brand to adjacent product categories,” with drones being the "most logical extension."

"We are not aware of any sell-side forecasts that incorporate drone revenue for GoPro (including our own)," Anderson added. "In terms of the potential impact, we note that leading consumer quadcopter drone-maker DJI (of China) is expected to sell over $1B of product in 2015 (roughly double 2014 revenue)."

He added, "If we assume DJI will have 80% market share this year and that the market will grow 50% in 2016, the addressable market is about $1.9B in 2016."

Assuming GoPro had 25 percent of that space with 30 percent margins, the company could make another $475 million in incremental revenue, along with $0.70 in additional EPS in the 2016 fiscal year. "At a 25x multiple, that would be worth $17.50 of upside to the stock," Anderson stated.

Shares of GoPro currently trade near the $57 range.

Other Comments

Anderson also mentioned Garmin Ltd. (NASDAQ: GRMN), Ambarella Inc (NASDAQ: AMBA) and QUALCOMM, Inc. (NASDAQ: QCOM) in his note. The analyst expects Garmin to "join the race," and said Ambarella could gain as well because it is a key GoPro supplier.

Qualcomm "is also attempting to become a supplier of SoCs for drones with a product very similar to what might be found in a modern smartphone," he added.