We all know GoPro ($GPRO), the maker of premium cameras for filmmakers, adventurers, athletes, and vloggers. GoPro is increasingly becoming an interesting turnaround play and is possibly one of the better investment opportunities of the year.

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Subscription Model

The direct-to-consumer, subscription-centric strategy on which management has been focusing has the ability to transform GoPro into a higher-margin, more profitable business with increasingly stronger growth. The impact of the DTC model can be already seen in the last couple of quarters. Both revenues and margins are on the rise.

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For Q3 2021, the number of paying subscribers was up 168% y/y. The truly impressive element of this whole story is that as GoPro gets closer to Q4 and reaches approximately 1.7 million subscribers at $50 per subscriber, that translates into $90 million of run-rate.

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You take that $90 million of recurring revenue, with 70% gross margins, meaning nearly $65 million in gross profits per year and growing. For a company that's priced at $1.6 billion market cap, you are getting $65 million of gross profits as a run-rate, and you are still left with the rest of the business, that's actually selling premium cameras thrown in for free!

This all together translates into GoPro's gross margin profile being the best gross margin profile since 2015.

Financials

GoPro's balance sheet holds $230 million of debt. However, that's offset by the approximate $380 million of cash and equivalents.

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As you can see above, the overall trajectory in cash on the balance sheet is clearly improving, growing by 41million y/y.

What's more, GoPro has over the past twelve months made $166 million of free cash flow.

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Given that Q4 is likely to be very strong, it's very easy to see GoPro making more than $200 million of free cash flow this year.

Let's revisit that number from earlier, $380 million in cash in Q3, and use it together with management's guidance of approximately $485 million in cash for Q4, shown above.

If we take these two numbers, this implies that seasonal high Q4 should see close to $100 million of free cash flow.

Not only does this figure imply that GoPro's free cash flow will increase by approximately 69% y/y but this means that GoPro's free cash flow this year will be higher than $160 million

Conclusion

GoPro's business is priced so absurdly cheaply that I believe It will vastly outperform most tech stocks in 2022. Here are the facts, GoPro's balance sheet has a strong net cash position. Its revenues are trending higher over time, even if a little choppy. GoPro literally oozes free cash flow. Just how much is the question. But I believe that being super conservative, it's likely to make at least $175 million in 2022. And best of all, it's priced at 9x next year's free cash flow. Not sales or EBITDA, but actual free cash flow.