Meet GoPro Inc.'s Newest Enemy: Xiaomi

By Markets Fool.com

One of the biggest threats to action camera maker GoPro is the rise of cheaper rival devices that boast comparable specs. Over the past year, Polaroid , Kodak , HTC , and other companies have launched their own action cameras, hoping to hitch a ride on GoPro's coattails. That pressure eventually forced GoPro to launch an entry-level HERO for $129 last year.

Continue Reading Below

However, a formidable new foe now threatens to undercut both GoPro and its cheaper alternatives in pricing. Xiaomi, the Chinese company that toppled Samsung last year as the top smartphone maker in China, which recently launched the Yi Action Camera, a $65 device which boasts beefier specs than the entry-level HERO.

Xiaomi's Yi Action Cam. Source: Xiaomi.

The Yi Action Camera is only available in China, but the launch could impact GoPro's expansion plans for China. Moreover, if Xiaomi launches the camera stateside, it could evolve into a serious threat to GoPro and its rivals.

GoPro's HERO vs. Xiaomi's Yi Action Camera
Both the low-end HERO and Yi have built-in Wi-Fi for file transfers and can be controlled remotely via companion apps. Both cameras have similar battery capacities, identical waterproof depth, and are compatible with a wide range of bracket mounts.

Continue Reading Below

However, the Yi tops the HERO at recording video and taking still photos. The HERO captures still shots at 5 megapixels, while the Yi shoots at 16 megapixels. The HERO can record 1080p video at 30fps, while the Yi records 1080p video at 60fps. The Yi, which weighs just 72g, is also much lighter than the 111g HERO. However, the HERO has a wider viewing angle of 170 degrees, compared to the Yi's 155 degrees.

GoPro's $129 HERO. Source: GoPro.

Since the Yi beats the HERO across most categories at half the price, GoPro could have a very tough time breaking into the Chinese market.

Why GoPro should watch its back
GoPro has held its ground against cheaper rivals with its brand appeal. As long as its rivals are collectively labeled "GoPro knockoffs," its brand remains synonymous with high-end action cameras. GoPro reinforces this notion with user-submitted and professional content on the GoPro Network.

However, investors should remember that Xiaomi recently unveiled plans to enterthe U.S. market by selling non-smartphone products like headphones, smart TVs, and air purifiers through its online Mi Store. Therefore, Xiaomi might start selling Yi Action Cameras via the Mi Store to U.S. customers.

In China, Xiaomi relies on three core strategies. First, it undercuts its main rivals by selling comparable hardware at paper-thin margins. Second, it cuts costs by spending very little on marketing, relying on word-of-mouth advertising, and only selling its products online. Third, it inflates demand and boosts publicity by announcing "flash sales" over social media. This also allows Xiaomi to sell its devices in batches and retain better control over its inventory.

If Xiaomi employs those same strategies stateside, GoPro's devices could start looking very pricey. If GoPro tries to match Xiaomi's prices with even cheaper cameras, its margins could decline as it cannibalizes sales of higher-end devices like the $400 HERO4 Silver and $500 HERO4 Black.

What GoPro investors should consider
GoPro stock fell nearly 5% after Xiaomi's announcement on March 2, but investors should remember that GoPro, which still relies on the U.S. market for over half of its sales, is doing quite well in its home market.

Last quarter, GoPro's revenue rose 75% year over year, and net income soared 267%. GoPro is also diversifying its top line with consumer drones and media expansion efforts, which could strengthen its brand and reduce its exposure to action cameras.

Yet GoPro also plans to expand globally. CEO Nick Woodman, speaking to the Financial Times at CES 2015 in January, stated that he planned for GoPro to enter the Chinese market sometime in 2015. But during CES, CFO Jack Lazar also told Citigroup's Ehud Gelblum that GoPro's overseas expansion plans might take longer than anticipated.

The verdict
If GoPro counts on the Chinese market to boost its revenue, but its overseas expansion plans aren't fully mapped out yet, it could be marginalized by cheaper competitors like Xiaomi. Therefore, Xiaomi's Yi Action Camera isn't a direct threat to GoPro for now, but it clearly tosses a wrench into that long-term strategy.

GoPro investors certainly shouldn't panic, but they should keep an eye on Xiaomi's moves over the next few months. If Xiaomi launches the Mi Store in the U.S. and uses it to sell the Yi Action Camera, investors should see how well they sell, and if it forces GoPro to lower its prices.

The article Meet GoPro Inc.'s Newest Enemy: Xiaomi originally appeared on Fool.com.

Leo Sun has no position in any stocks mentioned. The Motley Fool recommends GoPro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.