GoPro, Inc. Focuses on a Huge Second Half

GoPro's Karma drone is on track to launch ahead of the holiday season. Image source: GoPro, Inc.

Don't look now, but GoPro, Inc. (GPRO -2.86%) might just be back on track after an exceptional quarter -- relatively speaking, anyway. With GoPro stock down around 80% over the past year leading into the report, shares of the action camera maker jumped as much as 8% in after-hours trading following the release of second-quarter 2016 results Wednesday after the market close.

Whether that bump proves sustainable remains to be seen, given the sour sentiment surrounding the company amid a lull in its core markets. Let's dig deeper to see what drove GoPro's beat.

The headline numbers

Quarterly revenue fell 47.4% year over year, to $220.8 million. But sales also climbed 20.3% on a sequential basis from $183.5 million last quarter, comprised of an 8% increase in units shipped, to 759,000, and an 11% increase in average selling price (ASP). ASPs also rose 14% on a year-over-year basis. Meanwhile, adjusted gross margin fell 400 basis points year over year, to 42.4%, and translated to an adjusted net loss of $0.52 per share.

These results might not sound impressive at first. Recall, however, while GoPro didn't provide specific financial guidance last quarter, management did tell investors to expect "modest" revenue growth on a sequential basis, and stated Q1 adjusted gross margin of 33% would mark a low point for the year. And for reference, analysts' consensus estimates predicted GoPro would incur a wider adjusted net loss of $0.58 per share on significantly lower revenue of $194.3 million.

Sell-through also increased 10% sequentially, and outpaced sell-in by more than 50% for the second straight quarter. Channel inventory fell roughly 35% as a result -- near the low end of guidance, which called for channel inventory to decline in the range of 35% to 50% -- while GoPro's inventory fell 36% from last quarter, to $90 million, marking its lowest inventory level in two years.

On market share, software

GoPro offered supporting stats for the relative strength of its core capture device lineup as well. According to NPD Group data, GoPro's market share of the combined digital camera/camcorder segment increased 110 basis points year over year, to 21.3% in the United States. And GoPro boasted six of the top 10 products, including the top three in the category on a unit basis in the U.S. last quarter. In particular, the $399 HERO4 Silver continues to top the charts as the best-selling digital image camera on both a unit and dollar basis, while GoPro estimates the more affordable $199 HERO4 Session is No. 2 on a unit basis.

GoPro also gained 110 basis points in digital imaging market share in Europe, where it claimed four of the top five camcorders on a unit basis, bringing its slice of the key overseas market to 9.4%.

Meanwhile, GoPro's app ecosystem remains healthy. The GoPro mobile app was downloaded another 2.6 million times last quarter, bringing cumulative downloads to over 30 million. And quarterly installs of GoPro Studio came in at 1.5 million, bringing cumulative installs to over 17.7 million, with average daily video exports up 15.3% year over year, to more than 43,500.

Even more impressive, since GoPro rebranded its Quik and Splice apps in May, the mobile editing apps have doubled their combined monthly active users, to 3.7 million, and doubled their amount of shared content each month. As it stands, Quik and Splice now boast 37 million cumulative downloads.

"The largest introduction of products in our history"

GoPro founder and CEO Nick Woodman also confirmed new product launches remain on track, stating:

GoPro is well-positioned for the second half of the year. We now have a simple product line, a clean retail channel and clear indications of strong consumer demand. HERO5 and Karma will contribute to the largest introduction of products in our history, all in time for what we believe will be GoPro's most exciting fourth quarter, ever -- a quarter where we expect to return to profitability.

That's great news considering last quarter's delay of Karma is still fresh on investors' minds, and GoPro continues to anticipate the "vast majority" of its revenue this year will be collected in the second half.

As such, GoPro reiterated its previous full-year 2016 guidance for revenue of $1.35 billion to $1.5 billion, and initiated guidance for gross margin (both GAAP and non-GAAP) of 40%, plus or minus 1% for the second half of 2016. Moreover, GoPro now formally expects to be net income profitable on both a GAAP and non-GAAP basis in the fourth quarter.

Apart from GoPro's top- and bottom-line outperformance this quarter, there were no significant surprises in Wednesday's report -- and that's a good thing. As long as GoPro follows through on its promise for the "largest introduction of products" in company history in time for the crucial holiday season, I think GoPro's hope of reclaiming its former market-darling status remains intact.