devonshire capital funds - gopro
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-For Public Release-
Disclaimer
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Full Legal Disclaimer As of the publication date of this report, Devonshire Capital LLC ("Devonshire") has a short position in the stock of the company covered herein (GoPro, Inc.) and stands to realize gains in the event that the price of the stock declines. Following publication of the report, Devonshire may transact in the securities of the company covered herein. All content in this report represent the opinions of Devonshire. Devonshire has obtained all information herein from sources it believes to be accurate and reliable. However, such information is presented “as is”, without warranty of any kind – whether express or implied. Devonshire makes no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. All expressions of opinion are subject to change without notice, and Devonshire does not undertake to update or supplement this report or any information contained herein.
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Fears over Apple entering GoPro’s market, backed up by IP filings, sent GoPro shares tumbling 12.17% on Tuesday
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US 8934045 B2 (2015): Digital camera system having remote control Original applicant: Eastman Kodak Inventors: Kazuhiro Joza, Marc Krolczyk, Keith Stoll Karn
A digital camera system contains an image capture module, which consists of an image capture system and a wireless communication system, and a remote control module, which includes a battery, status display elements, user controls, a wireless communication system, and a power management system
Basic info
Description
Exemplary claims
(1) A digital camera system, comprising: An image capture module including:
A first image capture system including: A first image sensor for capturing a digital image; and A first optical system for forming an image of a first
portion of a scene onto the first image sensor; and A first wireless communication system; and
a remote control module including: A remote control status display including one or more remote
control status display elements for displaying status information pertaining to the image capture module;
A battery-operated power supply; One or more remote control user controls; A second wireless communication system for communicating
with the first wireless communication system using a wireless interface; and
A power management system providing a normal-power state where the remote control status display and the second wireless
communication system are active and a low-power state where the remote control status display and the second wireless system are inactive
Wherein when none of the remote control user controls have been activated for a predefined first time interval the power management system sets the remote control module to operate in the low-power state;
And wherein when a user activates one of the remote control user controls while the remote control module is in the low-power state:
The power management system sets the remote control module to operate in the normal-power state:
The remote control module sends a status inquiry to the image capture module using the second wireless communication system, and in response the image capture module sends status information back to the remote control module using the first wireless communication system; and
The status information is displayed using the remote control status display elements of the remote control status dusplay
Other bibliometric data
Patent application that resulted in this patent was re-assigned from Eastman Kodak to Apple on February 11, 2013 Cites over 56 patents, including previous work by Ricoh, Canon, Kodak, Minolta and other leading electronics and camera companies on camera remote
controls, image sensors, low-power capture modes, etc.; out of the 56 foundational camera and electronics patents that Apple cites, only one is also cited by GoPro’s portfolio of 50 granted patents
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One patent erased $880 million dollars from GoPro’s market cap in six-and-a-half hours
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GoPro Share Price (01/13/2015, by tick)
15.47%
How many other patents exist that can do the same?
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GoPro has soared upwards from an initial share price of $24 during its June IPO, propelled by impressive revenue growth and a wave of investor enthusiasm
1
Executive Summary
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ForecastEstimated
Go-Pro offers an example of a traditional consumer electronics growth revenue curve
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
R&D stage Consumer electronics co. Media co.?
Nick Woodman founds GoPro as
Woodman Labs after he is unable to find
suitable camera gear for a surf trip
Digital HERO 5 is released, the first with a 170-degree
view angle, ultra-wide lens (December 2008)
GoPro releases its first HD camera, the
HD HERO, shooting in 1080p at up to 60fps
GoPro introduces its first digital camera,
the Digital HERO, with 10-seconds of
recording capability
GoPro releases the HERO3, with Wi-Fi
connectivity and the ability to shoot in 4k
resolution
GoPro sells 17.8M shares in its IPO,
valuing it at $2.95B (June 2014)
Company releases its first product, a
camera system using 35mm film, in
September 2004
Units soldRevenue
$
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Within four years, GoPro has found a way to successfully turn a profit and to grow its earnings
Income Statement;For the Fiscal Period Ending
Dec-31-2010 Dec-31-2011 Dec-31-2013 Dec-31-2013LTM RestatedSep-30-2014
Revenue $64.5 $234.2 $526.0 $985.7 $1,121.7
Total Revenue 64.5 234.2 526.0 985.7 1,121.7
Cost of Goods Sold 31.7 111.7 298.5 624.0 646.8
Gross Profit 32.7 122.6 227.5 361.8 474.9
SG&A Expense 19.5 74.8 137.8 189.0 259.5
Selling and Marketing 13.2 64.4 116.9 157.8 not available
General and Administrative 6.3 10.8 20.9 31.6 not available
R&D Expense 1.4 8.6 36.1 73.7 131.2
Other Operating Expense, Total 20.9 83.5 173.9 262.8 390.7
Operating Income 11.9 39.1 53.6 99.0 84.2
Net Income $11.6 $24.6 $32.3 $60.6 $49.6
GPRO is 94th percentile in the NASDAQ in 1-year
revenue growth, and 98th percentile in 3-year
revenue growth
GoPro has managed to keep its gross margin over 35%, and as high as 50
Faced with stronger competition from HTC,
Polaroid, and Sony, GPRO has raised R&D exp. from 2% of revenue to 12%
Balance Sheet;As of
Dec-31-2010 Dec-31-2011 Dec-31-2013 Dec-31-2013 Sep-30-2014
Cash And Equivalents $ - $29.1 $36.5 $101.4 $237.7
Short Term Investments - - 1.2 2.0 1.6
Total Cash & ST Investments - 29.1 37.3 103.5 239.3
Total Assets - 104.4 246.7 439.7 589.1
Total Liabilities $ - $37.4 $249.3 $367.8 $238.4
Net Debt not available $(28.7) $91.7 $10.2 $(239.3)
Quick Ratio not available 1.5x 0.9x 0.8x 1.5x
Inventory Turnover not available not available 7.6x 7.2x 5.8x
GoPro’s large cash holdings have been bolstered by its recent secondary offering
1.5x quick ratio underscores GoPro’s strong cash position; it could pay
off all liabilities with its cash and short-term investments
GoPro may take advantage of its low long-term debt to
make acquisitions in the near-term
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GoPro has soared upwards from an initial share price of $24 during its June IPO, propelled by impressive revenue growth and a wave of investor enthusiasm
1
Executive Summary
GoPro’s publicity engine has hyped the stock ever since its IPO, but some investors and activists remain concerned
2
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GoPro’s valuation in December was abnormally high, especially when looking at companies with comparable PE/PB ratios
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P/E (LTM Norm.): 214x P/E (NTM): 74.69x P/BV: 80x
Revenue $6,500
1-Yr Rev. Growth
11.3%
Net Income
($43)
Revenue $985.7
1-Yr Rev. Growth
87.4%
Net Income
$60.6
Revenue $14,474
1-Yr Rev. Growth
45.8%
Net Income
($964)
Revenue $3,022
1-Yr Rev. Growth
24.2%
Net Income
$90
Revenue $2,300
1-Yr Rev. Growth
27.1%
Net Income
$162
Revenue $8,155
1-Yr Rev. Growth
8.7%
Net Income
($169)
Revenue $17,857
1-Yr Rev. Growth
6.9%
Net Income
$162
Multiples based on avg. for quarter ending 12/8/2014
Revenue $2,972
1-Yr Rev. Growth
8.8%
Net Income
$804
Revenue $5,591
1-Yr Rev. Growth
(0.5%)
Net Income
$558
Revenue $6,170
1-Yr Rev. Growth
5%
Net Income
$913
Revenue, net income from 2013 ($M)
Owns, operates, or leases 298 leading entertainment and other venues globally; 150M+ ticket sales per year
Leading international cable company, with 14x GoPro’s revenue and impressive revenue growth
Key rating institution with over $839M in levered FCF in 2013 and $2.1B in cash
4th-largest cable provider in US, with 27.6M subscribers and $961M in operating income
Largest provider of wireless infrastructure in US; signed large tower leasing agreement with AT&T in 2013
Leading American consumer and products brand with $5.6B in revenue and consistent 40+% gross margins
Major South Korean conglomerate with holdings across an impressive span of industries
Ascendant athletic wear company with major long-term supply deals and a significant addressable market
British multination clothing, footwear, and home products retailer with sold net income and $6B in revenue
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In December, GoPro’s market cap ($9.2B*) placed it alongside the world’s largest consumer goods, media, and tech companies
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Revenue ($M) Net income ($M) Rev. growth, 1-yr.Company & Mkt. Cap* Description
$74,488 ($3,100) (2.45%) Europe’s second-largest car manufacturer by
volume; global deliveries of 2.82 million Rapidly expanding in Chinese market
$19,800 ($1,790) 0.09%
French telecommunications equipment company Industry Group Leader for Technology Hardware
in Dow Jones Sustainability Indices review One of Top 100 Global Innovators for 4th
year in a row
$23,100 $620 (5.19%) Office supply chain with 2,000 stores worldwide
and over 90,000 employees
$8,500 $449 (3.57%)
American multinational media company Holds Down Jones & Co., the NY Post, Harper
Collins, and other publishing and newspaper assets
Earned off of its broad content and media holdings
$7,500 $449 18.8%
Manufactures and sells automation equipment and systems and medical equipment
One of Top 100 Global Innovators in 2013, per Thomson Reuters
Leading technology innovator
$55,070 $167 5.48%
Multinational manufacturer of consumer, home, and automotive electronics
Ranked in top 50 Most Innovative Companies in 2014 by BCG
One of world’s top electronics brands
*all market caps as of 12/5/2014
$10.14B
$9.55B
$9.87B
$9.18B
$9.2B
$10.34B
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Analysts have hyped GoPro’s stock since its IPO, but skeptics have raised doubts
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What GoPro’s media hype engine says… …what critics say about GoPro’s situation
GoPro has continued to see stellar revenue growth; GoPros should be among the key gifts this holiday
season, as it has top billing at Amazon and Best Buy
GoPro will need to ship 15M to 20M devices annually to grow into valuation; long-term projections of annual GoPro sales are closer to 10M to 12M
Unlike Apple’s iPod, GoPro cameras appeal to a much smaller addressable market, which is already showing signs of saturation
GoPro’s intended shift towards a media / content company means it should be valued as such; it has
one of the top 10 YouTube brand channels
GoPro has yet to generate any significant revenue from its YouTube channel or media efforts, yet it has the same market cap as News Corp
GoPro doesn’t necessarily own content shot on its devices
GoPro’s cameras feature industry-leading technology that its competitors can’t match, which will allow it to
sustain margins
GoPro’s cameras are not significantly better than those of its competitors, nor are its chipsets differentiated or particularly unique
In fact, GoPro faces increasingly intense competition from Sony, HTC, and Polaroid, among others
GoPro offers 4% net profit margins and $110M in positive levered free cash flow generated each year; momentum / enthusiasm of retail investors keeps
bumping it higher
Picking and choosing out of a basket of metrics is dangerous; any look at the fundamentals should focus on its sky-high price-to-book, forward P/E, and price-to-sales ratios; mob mentality is not a long-term viable valuation method
GoPro plans to release its own line of consumer drones in late 2015, expanding its product offering into what
may be the next hot consumer product
Leading drone manufacturers have already begun selling drones with cameras sourced in-house
GoPro is four years behind industry leaders, and may be shooting itself in the foot since many drone manufacturers market their drones for use with GoPro cameras
Google may look to acquire GoPro in 2015
The majority of proposed synergies benefit GoPro above all; GoPro’sspecialization is not near-term relevant to Google Glass
Google paid $9.5B for Motorola and received 4,500 patents and was able to bolster Android; $9B for a camera company with limited IP appears high
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For Public Release 12
GoPro has soared upwards from an initial share price of $24 during its June IPO, propelled by impressive revenue growth and a wave of investor enthusiasm
1
Executive Summary
The crest of this wave of Wall Street hype is evident in frothy media coverage of GoPro and surprising, if not outright worrying, valuations metrics
2
But as the valuations have grown, so have questions about GoPro’s future success3
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Not everyone believes the hype surrounding GoPro, and some have made their opinions known
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Copperfield Research
Citron Research
Kerrisdale Capital
“GoPro is a tech hardware company. Yet it has spun a story, which is a very convenient fiction, for Wall Street to parrot: that it can become a ‘media company’. Why? Because users are uploading some of their videos to YouTube?”
“The clearest comparison to GoPro is Beats Headphones…Apple bought Beats for 2x revenue…At the time of the acquisition, much of the media opined that 2x sales was high for a product in a commoditized industry.”
“We have never seen analysts on consumer electronics gear company resort to social media ‘eyeballs’ metrics to justify valuations…In Wall Street’s compulsion to fabricate a story where a story does not exist, you see its fingerprints on GoPro media.
“We believe $GPRO has used accounting gimmickry to overstate EBITDA by at least 10%. Very aggressive”
“$GPRO is not what it seems. Great product, great chart…but accounting has yet to be fleshed out well.”
Media strategy is unlikely to bear fruit; although GoPro has millions of YouTube subscribers and hundreds of millions of views of its videos, the idea of the company obtaining significant amounts of revenue from YouTube or a cable TV station is “ludicrous”
Some investors have compared GoPro’s camera to Apple’s iPod, but unlike the iPod it does not have an ecosystem and is not “materially superior” to its competition
Accounting issues
Wall Street market-making
Weak fundamentals
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Is GoPro the next Flip Cam?
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History
Previous hype surrounding Flip
Flip Video cameras were a popular product line sold from 2006 to 2011 by Pure Digital Technologies
Hailed as “the future of journalism video”, Flip Cams were one of the “most significant electronics products of [2008]”, according to New York Times tech writer David Pogue
Over seven million were sold between 2006 and 2011; at times it represented over 35% of the camcorder market
In 2011, however, Cisco, which had acquired Flip for $590M, shuttered the business, seeking to exit the low-margin, increasingly competitive consumer camera market while retaining Flip’s valuable intellectual property portfolio
Introduction
Flip is “looking at a younger audience, 14-25 or 28, who’ll just slip it into their pocket…This particular product is a subsector we’re creating”
Ray Sangster, Flip Video’s European president “e-tailers moved very quickly…they’re the guys with the fingers
on the pulse.”Ray Sangster, Flip Video’s European president
“Pure Digital reveals YouTube-friendly Flip Video Ultra”
Engadget The Flip Ultra is part of the “modern reporter’s toolkit”
Rory Cellan-Jones, BBC tech correspondent “A Reporter’s Toolbag: Reduced to Two – Flip Camera and
iPhone…The Flip video camera’s simple, one-red-button
design makes it perfect for capturing quick video pieces”Nieman Reports
The Flip Ultra was released on September 12, 2007, quickly becoming the best-selling camcorder on Amazon; within a year it had
captured 13% of the camcorder market
The Flip Mino HD, Pure Digital’s first HD camera, was released on November 11, 2008
Cisco Systems acquired Pure Digital on May 21, 2009 for $590M in stock
On April 12, 2011, Cisco announced it was shuttering Flip, laying off 550 employees and “writing off” its $590M purchase; the unit was “considered a drag on margins” and was “facing
increased competition from traditional camcorder players”
Cameras are still a rapidly commoditizing, replaceable piece of consumer electronics
340400400
150
50219421
20042002 2003 2005 201020092006 20082007 2011
Flip Sales ($M)¹
¹Estimated on analyst consensus
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For Public Release 15
GoPro has soared upwards from an initial share price of $24 during its June IPO, propelled by impressive revenue growth and a wave of investor enthusiasm
1
Executive Summary
The crest of this wave of Wall Street hype is evident in frothy media coverage of GoPro and surprising, if not outright worrying, valuations metrics
2
But as the valuations have grown, so have questions about GoPro’s future success3
While many of the previous points are concerning, we are asking a more fundamental question: how much technology does GoPro actually own?
4
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Garmin
Most analysts, whether long or short, value GoPro as a technology company…but how much technology does GoPro own?
For Public Release 16¹ Within last 20 years; US/Europe/JP INPADOC families² Conservative estimates based on point of last certainty
R&
D s
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B
Revenue, FY2013, $M
Direct Competitors in Action Cam Market
Leading Digital Camera Manufacturers
Size scales with patent portfolio¹
Examining camera-specific patent portfolios of leading manufacturers
Among leading camera makers, GoPro has the lowest R&D spend and the 2nd –smallest patent portfolio
Garmin has a small camera IP portfolio, but it also has 350 other patent families covering its core
products
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GoPro CEO Nick Woodman and S-1 filings have hinted at this problem before, as recently as August 2014
For Public Release 17¹ Source: Bloomberg phone call, August 2014
“We relied on the engineering departments of our contract manufacturers for innovation – at their pace of innovation. [But now] we’ve got a ton of brilliant products in
the pipeline, and we’ve developed a ton of brilliant intellectual property”
Nick Woodman, GoPro Founder and CEO¹
Risk factors
Many of our existing and potential competitors enjoy substantial competitive advantages, such as… larger intellectual property portfolios…Our intellectual property rights and proprietary rights may not adequately protect our products.…Our business may suffer if it is alleged or determined that our technology or another aspect of our business infringes the intellectual property rights of others.…If we are unable to maintain or acquire rights to include intellectual property owned by others in the content distributed by us, our marketing, sales or future business strategy could be affected or we could be subject to lawsuits relating to our use of this content.
GoPro S-1
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For Public Release 18
GoPro has soared upwards from an initial share price of $24 during its June IPO, propelled by impressive revenue growth and a wave of investor enthusiasm
1
Executive Summary
The crest of this wave of Wall Street hype is evident in frothy media coverage of GoPro and surprising, if not outright worrying, valuations metrics
2
But as the valuations have grown, so have questions about GoPro’s future success3
While many of these attacks are concerning, none of them are the attack we are presenting today; GoPro’s core problem is far more significant…it hardly owns any technology
4
GoPro appears to have gone to market with a technology product before it owned any technology
5
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In January 2014, GoPro was granted its 5th patent family, but had already sold over 8.1 million cameras – this matters
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35 U.S. Code § 283The several courts having jurisdiction of cases under this title may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable.
35 U.S. Code § 284
Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.When the damages are not found by a jury, the court shall assess them. In either event the court may increase the damages up to three times the amount found or assessed.
35 U.S. Code § 286Except as otherwise provided by law, no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action.
35 U.S. Code § 281 A patentee shall have remedy by civil action for infringement of his patent.
If you infringe and sell products in the past, you can be held liable in the future:
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Potential for “lookback”
Potential for “lookback”
Potential for “lookback”
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1.2
1.4
2014
24
2013
15
2012
62
2011
5
32
2010200920082007200620052004
1054
14
10
0
5
10
15
20
25
30
35
40
3
2
0
1
4
5
2004 2005 2006 2012
26
2014
5
2011
23
200920082007 2010
15
24
2013
Design Patents
Utility Patents
Revenue
Design Patents
Utility Patents
Units Sold
Recapping GoPro’s revenue and unit sales timeline underscores that its products predate its granted patents
For Public Release 20¹ US/Europe/JP grants² Units sold est. 2004-2010, proj. 2014³ Revenue est. 2007-2008, proj. 2014
GoPro Patenting¹ vs. Sales²
GoPro Patenting¹ vs. Revenue³
GoPro Revenue³ / Utility Patent¹ ($M)
Revenue / Utility Patent
Gra
nte
d P
ate
nts U
nits S
old
(M)
Gra
nte
d P
ate
nts R
eve
nue ($
M)
Reve
nue /
utilit
y pate
nt
GoPro had sold almost two million cameras before it had a single US granted patent
-For Public Release-
Each successive iteration of GoPro has introduced new features reliant on new technology – but does GoPro own the technology its cameras utilize?
21
Digital HERO Digital HERO 3 Digital HERO 5 HD HERO HD HERO 960 HD HERO2 HERO3 HERO3+ HERO4
Digital Video with audio HD 4K
Ke
y
fea
ture
Sto
rag
e
me
diu
m
Internal / external flash memory
170º lens
External SDHC flash
120 fps Wi-Fi
Po
we
r so
urc
e
AAA batteries1,100 mAh Li-ion battery + optional Battery BacPac (not compatible with HD
HERO 960)
Re
so
l-u
tio
n
512x384 1080p 960p 1080p 4k
Fra
me
-ra
te 30fps
Internal flash memory
60fps 120fps 240fps
Wa
ter-
pro
of
to
30’ 100’ 197’ 131’
For Public Release
-For Public Release-
Covers existing GoPro case shape
Majority of the IP that GoPro owns appears to cover the design of its products, not its core technology…
For Public Release 22
Design Patents
Battery
Camera Housings
Expansion Modules
Lens Covers / Windows / Adapters
USD682778S1 Ornamental design for a GoPro lithium ion battery
USD646313S1 Describes housing for GoPro’s Hero cases
USD657808S1 Design for a camera housing
USD674429S1 Design for camera housing with three lens windows
USD702276S1 Design for square camera housing with latch
USD702747S1 Design for housing with square lens cover
USD699277S1 Design for housing for Dual Hero system
USD674428S1 Design for housing for Dual Hero system
USD699276S1 Design for a square camera housing
USD702277S1 Design for a square camera housing
USD710922S1 Design for a square camera housing with LCD viewing pane in back
USD710921S1 Design for a camera housing with square lens cover
USD698791S1 Ornamental design for a BacPac expansion module
USD691608S1 Ornamental design for a GoPro Battery BacPac
USD698790S1 Ornamental design for a BacPac expansion module
USD691609S1 Ornamental design for a GoPro Battery BacPac, with fewer ports
USD692472S1 Design for a lens adapter
USD699275S1 Design for a lens adapter
USD702755S1 Design for a cylindrical lens cover
USD702754S1 Design for lens cover with cover for button as well
USD657811S1 Design for spherical lens window on GoPro’s waterproof cases
USD644679S1 Covers the specific design of the lens window of GoPro’s waterproof cases
USD689537S1 Design for a flat lens camera assembly; resembles “Dive Housing”
USD688726S1 Design for a suction cup mount
USD698851S1 Design for a suction cup mount
USD677748S1 Design of a mounting system for a “sports board”
USD687112S1 Design of a mounting system for a “sports board”
USD697570S1 Design of a mounting system for a “sports board”
Important to note that, surprisingly, many of GoPro’s competitors have used very different design language in their offerings
Mounts
These cover form, not function
Some prior art surrounding suction mount iterations
Covers design, not function of mounting system
Important to note that most GoProcompetitors have waterproof bodies, not cases
Are lens covers a core GoPro accessory?
Interchangeable lenses seem to be mostly pushed by external brands
Utilize GoPro’s proprietary port to protect copycats
Protects Blackout Housing in multiple iterations
Covers existing GoPro case shape
Could protect stereoscopic camera housing designs
Covers existing GoPro case shape
Doesn’t appear to map to current product
Covers basic battery design
-For Public Release-
…while GoPro’s utility patents predominantly focus on various housings, mounts, and harnesses
For Public Release 23
Utility Patents
US8606073B2 Method for managing multiple video streams of a broadcast
US8837928B1 Housing with laterally-mounted latch mechanisms
US8325270B2 Camera housing with integrated expansion module and cable from module to camera
US8638392B2 Camera housing with integrated expansion module and cable from module to camera
US8199251B2 Camera housing with integrated expansion module and cable from module to camera
US8644629B2 Decompression of images captured by Bayer-style camera
US8718390B1 Two operating modes of accessing and decoding image plane data
US8538143B2 Compressing RGB images from single-sensor imager by separating into planes
US8345969B2 Method of compressing color imagery of video from Bayer sensor
US8879861B2 A method of accessing / decoding image planes to re-construct an image
US8014597B1Separating image into independent color channels and encoding / compressing them,
storing them, and re-combining into full-color display
US8830367B1 Image sensor, frame controller, and processor system to reduce rolling shutter
US8879858B1 Storing compressed image data in multiple band states
US8687086B1 A method of compressing image data before sending to a digital signal processor
US8014656B2 Two-piece mount for attaching camera to sports board
US8870475B1 Detachable buckle component for mounting on a sports board
US8857775B1 System with a spring clamp for mounting a camera to various equipment
US8150248B1 Two-piece mount for attaching camera to sports board
EP2341389B1 Strap that allows for two secured positions of camera
US8079501B2 Harness for attaching camera to a human user
EP2357525B1 Strap that allows for two secured positions of camera
EP1611480B1 Strap that allows for two secured positions of camera
Some of these patents refer to technology for which prior patenting and prior art records are extensive
Broadcasting
Camera Housings
Compression / Image
Manipulation
Mounts / Harnesses
Given prior patenting and
potential prior art, these may not
survive IPR
Post-Alice decision, these patents
deserve further examination
Much extant IP in this area
May be susceptible to prior art
Not applicable to existing business model; prior use?
Certain of these appear to be susceptible to prior art / practice; while this family has received consistent attention from GoPro, questions about its strength remain
Potential for high throughput apps
Deserving of prior art search; narrow?
Use of frame buffer predates this
Important concerns over decades of prior art in this field; relatively narrow claim construction
Superseded by new mounts
How limited is applicability / use?
How limited is applicability / use?
Language may have workarounds
-For Public Release-
The heart of GoPro’s IP is the process of mounting cameras onto surfboards
For Public Release 24
‘Over the years, [Preston ‘Pete’ Peterson] got interested in photography. In a direct line from Tom Blake to Doc Ball, Pete produced several prototype camera housings for his own use and experimentation. His most notable experiment was “an underwater housing that George Downing mounted on his board and on his back like a butt pack,” wrote Craig Lockwood, based on what Pete’s son John told him. “Shot at Makaha in the mid-1950s, these may be the first-ever shots of a board taking off underwater.”’¹
Footage likely shot at Sunset Beach on Oahu, no later than 1962; TV show Adventures in Paradise aired on ABC from 1959 to 1962²
¹ Source: Legendary Surfers, Malcolm Gault-William² Retrieved from YouTube
-For Public Release-
For Public Release 25
GoPro has soared upwards from an initial share price of $24 during its June IPO, propelled by impressive revenue growth and a wave of investor enthusiasm
1
Executive Summary
The crest of this wave of Wall Street hype is evident in frothy media coverage of GoPro and surprising, if not outright worrying, valuations metrics
2
But as the valuations have grown, so have questions about GoPro’s future success3
While many of these attacks are concerning, none of them are the attack we are presenting today; GoPro’s core problem is far more significant…it hardly owns any technology
4
In fact, GoPro made a name for itself as a tech company well before it had one, single granted patent
5
Does GoPro have necessary technology it needs to drive its ambitious future growth strategies?
6
-For Public Release-
GoPro’s corporate strategy, outlined in its reports and calls, references many technology areas with significant IP activity
For Public Release 26
Manufacture and sell consumer drones
Become a media company
Pursue image stabilization
Improve waterproof cases/bodies
Add GPS location to camera
GoPro patenting Industry patenting
0
0
5
3
0
~1,400
~2,600
~15,900
~300
~860
Forward-looking GoPro strategies
-For Public Release-G
rante
d P
ate
nts
¹
Enthusiasm over GoPro’s strategy to enter drones should be tempered by competitors’ patenting levels
For Public Release 27
207207
173
115
868165576251424948
292413211314111
0
50
100
150
200
250
2007 2009 20102003 20082006 2011 20122005200419961994 1995 2000 2001 200219981997 1999 2013 2014
Patenting on UAVs
¹ US/JP/EP grants, ’94 to ‘14
UAV / UAS Patenting
Early work led by American defense
corporations
Foundational work re. hobbyist drones is
from early 1990s
Small clusters of inventorship have started to
appear, although citation network is still fledgling
Parrot SA, which jumpstarted
consumer drone market, has a strong
portfolio
Honeywell has a particularly strong
portfolio around the use of cameras with
drones
Assignee network
-For Public Release-
GoPro’s competitors own the software, hardware, and methods of content management and distribution
For Public Release 28
Gra
nte
d P
ate
nts
¹
1,1861,1191,097
1,2201,346
1,148
942919897755
684628548532566603563
397356346
210
200
400
600
800
1,000
1,200
1,400
19971996 2000 2004 20061999 200520031998 200220011994 1995 2007 2011 201320092008 201420122010
Patenting on broadcast communications
¹ US/JP/EP grants, ’94 to ‘14
Key GoPro competitor Sony rests at the center of the broadcast communication citation network, with well
over 1,100 patents
Nielsen Co also boasts a strong portfolio, unsurprisingly
Google’s portfolio includes estimating demographic
compositions, data collection on users and dynamic data
delivery
HTC, another GoPro HERO competitor, has a strong portfolio on handling and
managing multimedia broadcasts
GoPro does not appear on this citation network, which only features portfolios of
over eight patents
Digimarc also shows well in this space, with key
watermarking technology, image processing, and
second screen IP
Broadcast Communications Patenting
Assignee network
-For Public Release-
Attempts by GoPro to include image stabilization in its products may be hemmed in by its competitors’ (especially Sony’s) patenting
For Public Release 29
Gra
nte
d P
ate
nts
¹ 252272
255
223235214
168153151
88121
103101
444536
82
4833
1720
50
100
150
200
250
300
20132007 2011 20122009 20102008 20141994 1999 2000 2005 2006200420022001 20031998199719961995
Patenting on image stabilization
¹ US/JP/EP grants, ’94 to ‘14
Image Stabilization Patenting
Nikon and Canon represent the center of image
stabilization patenting, with consistent transfer of
knowledge between the two
Small group of Irish / European optics and
photography companies
Sony Corp has a strong, relatively distinct, portfolio; this is no surprise given the
success of its image-stabilized action cameras
Even smaller competitors, such as Minolta and Casio,
have strong portfolios surrounding image
stabilization
Assignee network
-For Public Release-
Kodak, Sony, and Ricoh have been patenting around waterproof cameras since the mid- to late-90s
For Public Release 30
Gra
nte
d P
ate
nts
¹
8679
726161
5347
3939
2533
4041
293240
242115
22
10
20
40
60
80
100
1998 20021997199619951994 1999 2001 201420132012201120102009200820032000 20062005 20072004
Patenting on waterproof cameras
¹ US/JP/EP grants, ’94 to ‘14
Waterproof Camera Patenting
Very isolated citation network; little work between
secondary players
Key cluster includes Kodak, Ricoh, Sony, Olympus, Fuji, and Minolta with research occurring predominantly
from 1994 to 2004US Navy and US Army have each contributed to the field,
focusing on underwater cameras for submarine
detection
Assignee network
-For Public Release-
GoPro has located a niche in the GPS / camera space, but its application is narrow
For Public Release 31
Gra
nte
d P
ate
nts
¹
4749
36
26
32
1720
914
710
5577542210
10
20
30
40
50
2000 2001 2002 2003 2004 2005 2006 2007 20081999199819971996 201220112010 2013 2014200919951994
Patenting on GPS in cameras
¹ US/JP/EP grants, ’94 to ‘14
GPS and Camera Patenting
Nokia (5) and Sony Ericsson (13) both have portfolios
surrounding this technology
GoPro / Woodman Labs claims an integrated
expansion module that may include a GPS unit (it is not
internal to the camera)
Apple and Samsung both have patents in this
technology space, with Apple focusing more heavily on the
camera side
Digimarc uses GPS to digitally watermark images and videos with location
data
Fujifilm describes image capturing devices with maps
and an apparatus for identifying images
Assignee network
-For Public Release-
For Public Release 32
GoPro has soared upwards from an initial share price of $24 during its June IPO, propelled by impressive revenue growth and a wave of investor enthusiasm
1
Executive Summary
The crest of this wave of Wall Street hype is evident in frothy media coverage of GoPro and surprising, if not outright worrying, valuations metrics
2
But as the valuations have grown, so have questions about GoPro’s future success3
While many of these attacks are concerning, none of them are the attack we are presenting today; GoPro’s core problem is far more significant…it hardly owns any technology
4
In fact, GoPro made a name for itself as a tech company well before it had one, single granted patent
5
Despite its recent attempts to improve its IP, GoPro still does not have the intellectual property it needs to control its future
6
If GoPro has infringed others’ technology, it may be liable for hundreds of millions of dollars in damages looking backward and hundreds of millions of dollars in royalties looking forward
7
-For Public Release-
Past companies have demonstrated how costly technology can be to acquire retroactively
For Public Release 33
Marvell Technology was found in December 2012 to have intentionally infringed two Carnegie Mellon University patents and was ordered to pay $1.17 billion dollars in damages
Marvell has chosen instead to continue to appeal; in the meantime, as of April 2014, the verdict has reached $1.54 billion dollars
($1,540M)
DuPont was ordered to pay Monsanto $1 billion dollars after losing a patent verdict in August 2012 This was followed by a new licensing deal in March 2013 that threw out the earlier verdict but
required DuPont to make at least $1.75 billion dollars in royalty payments over the next several years
($1,750M)
In late 2002, RIM was found guilty of infringing NTP’s patents on wireless email and ordered to pay $53 million dollars
Instead, RIM continued to appeal until March 2006 when, hit with a stern warning from the presiding judge, it agreed to pay NTP $612.5 million dollars
($612M)
Intel faced the music several times in the early 2000s, paying Intergraph Corp $300 million dollars in April 2002 for infringing Intergraph’s patents with its Pentium chips, an additional $150 million dollars for infringing with its Itanium chips, and following those up with a March 2004 settlement of $225 million dollars to close all outstanding patent litigation between the two companies
($675M)
EchoStar Corporation settled its patent litigation with TiVo in May 2011, signing a license deal and agreeing to pay TiVo $500 million dollars ($500M)
SAP was found in 2009 to infringe a business method patent held by Versata Software and was ordered to pay $139 million dollars; after a new trial, this amount grew to $391 million dollars ($391M)
After a 2010 verdict, Microsoft agreed to pay VirnetX Holding Corp $200 million dollars to license its patents on secure network communications ($200M)
W.L. Gore & Associates was ordered by the Federal Circuit in January 2015 to pay C.R. Bard Inc. $1.06 billion dollars after it willfully infringed Bard’s blood vessel graft patent ($1,059M)
-For Public Release-
Canary in the coal mine? Some companies think GoPro is infringing their IP
For Public Release 34
Z-Dimensional, LLCVStream Technologies,
LLC
Acc
use
d p
roduct
sPate
nts
in s
uit
Case
info
rmation
Hero Hero2 Hero 3
Hero3+ Black Edition Dual / 3D Hero System
Jaws flex clamp Digital video cameras
US5,742,737 – “Method For Recording Voice Messages On Flash Memory In A Hand Held Recorder”
Venue: CA Southern District Filed: 12/5/2012Latest Docket Entry: 1/27/2014Status: Open in Scheduling
US7,729,530 – “Method and Apparatus for 3-D Data Input to a Personal Computer with a Multimedia Oriented Operating System
Venue: TX Eastern District Filed: 4/15/2014Latest Docket Entry: 11/5/2014Status: Closed in Initial Pleadings
US8,602,662 – “Camera and Accessories Clamping Mount”
Venue: Colorado District CourtFiled: 1/21/2014Latest Docket Entry: 11/19/2014Status: Closed in Claim Construction (Settled)
US6,690,731; US8,179,971; US6,850,647; US7,627,183; US7,489,824 – Five patents relating to compression / decompression of video data
Venue: CA Southern District Filed: 12/5/2012Latest Docket Entry: 1/27/2014Status: Open in Scheduling
As a direct result of its relationship with Dinkum, GoPro became intimately aware of the ActionPod Products, including product components and the manufacturing process, and Dinkum’s desire to grow its business through sales of these products
In October 2013, GoPro release the Jaws Flex Clamp, a clamping monopod mount as an accessory to its camera line that is substantially similar to the ActionPod Products
Upon information and belief, GoPro developed the Jaws Flex Clamp at the same time it was promoting the ActionPod Products Upon information and belief, GoPro intentionally kept secret from Dinkum its development of the Jaws Flex Clamp By copying the ActionPod Products to create the Jaws Flex Clamp, GoPro misappropriated the skill and labor of
Dinkum
-For Public Release-
Many of GoPro’s key features appear to be referenced by earlier patents assigned to competitors
For Public Release 35
US5481303A – Nikon
US6002240A– Dell
US7327122B2– Mathews Associates
US7123935B2– Canon
US5475539A – Casio
US5438363A– Nikon
US6624842B2– Diversified Patent
US6864911B1– HP
US6285471B1– Siemens
US6987527B2 – Philip Kossin
US7714925B2 – Samsung
US6462508B1– Kinpo Electronics
US6574433B1–Frank Stuempfl
US7924323B2– Walker Digital
These are just a few of the patents that engineering analyses commissioned by Devonshire Capital Funds suggest GoPro may infringe
-For Public Release-
Many companies with strong track records of defending IP appear to hold patents related to GoPro products
For Public Release 36
-For Public Release-
Thank you
For Public Release 37
Matt Stack, Fund ManagerDevonshire Capital Fund
-For Public Release-
For Public Release 38
Full Legal Disclaimer As of the publication date of this report, Devonshire Capital LLC ("Devonshire") has a short position in the stock of the company covered herein (GoPro, Inc.) and stands to realize gains in the event that the price of the stock declines. Following publication of the report, Devonshire may transact in the securities of the company covered herein. All content in this report represent the opinions of Devonshire. Devonshire has obtained all information herein from sources it believes to be accurate and reliable. However, such information is presented “as is”, without warranty of any kind – whether express or implied. Devonshire makes no representation, express or implied, as to the accuracy, timeliness, or completeness of any such information or with regard to the results obtained from its use. All expressions of opinion are subject to change without notice, and Devonshire does not undertake to update or supplement this report or any information contained herein.
This document is for informational purposes only and it is not intended as an official confirmation of any transaction. All market prices, data and other information are not warranted as to completeness or accuracy and are subject to change without notice. The information included in this document is based upon selected public market data and reflects prevailing conditions and Devonshire’s views as of this date, all of which are accordingly subject to change. Devonshire’s opinions and estimates constitute a best efforts judgment and should be regarded as indicative, preliminary and for illustrative purposes only. Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This report’s estimated fundamental value only represents a best efforts estimate of the potential fundamental valuation of a specific security, and is not expressed as, or implied as, assessments of the quality of a security, a summary of past performance, or an actionable investment strategy for an investor.
This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein or of any of the affiliates of Devonshire. Also, this document does not in any way constitute an offer or solicitation of an offer to buy or sell any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction. To the best of Devonshire’s abilities and beliefs, all information contained herein is accurate and reliable. Devonshire reserves the rights for its affiliates, officers, and employees to hold cash or derivative positions in any company discussed in this document at any time. As of the original publication date of this document, investors should assume that Devonshire is short shares of GoPro, Inc. and stands to potentially realize gains in the event that the market valuation of the company’s common equity is lower than prior to the original publication date. These affiliates, officers, and individuals shall have no obligation to inform any investor about their historical, current, and future trading activities. In addition, Devonshire may benefit from any change in the valuation of any other companies, securities, or commodities discussed in this document.
The information contained in this document may include, or incorporate by reference, forward looking statements, which would include any statements that are not statements of historical fact. Any or all of Devonshire’s forward-looking assumptions, expectations, projections, intentions or beliefs about future events may turn out to be wrong. These forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors, most of which are beyond Devonshire’s control. Investors should conduct independent due diligence, with assistance from professional financial, legal and tax experts, on all securities, companies, and commodities discussed in this document and develop a stand-alone judgment of the relevant markets prior to making any investment decision.