GoPro's new Hero4 Session camera, Credit: GoPro.
GoPro (GPRO 5.92%) stock briefly popped following its better-than-expected second-quarter results three weeks ago. But shares of the action-camera maker have since given up those gains and -- thanks, in part, to a nearly 9% drop on no news earlier this week -- now trade down around 7% so far in 2015.
Given all this volatility, now's a great time for investors to pause, take a deep breath, and revisit the trends driving GoPro's business today. Lucky for us, GoPro management spends roughly an hour doing just that with analysts in a conference call each quarter. Here are five of the most important points they discussed during the most recent call:
1. GoPro is finally rolling in China
[A] quick update on China, where we are very pleased with our progress: China has become a top 10 revenue generating country for GoPro, and our store track count grew 31% sequentially. Later this quarter, we will launch a simplified Chinese user interface for our HERO4 line of cameras and a simplified Chinese version of our mobile app. -- GoPro CEO Nicholas Woodman
First, with more than 1.3 billion citizens and a fast-growing middle class, the Chinese market holds enormous promise. But investors should be particularly encouraged that China only just became a top-10 revenue-generating country for GoPro. As GoPro further develops its Chinese user interface and mobile app, it seems safe to expect China's contribution should only increase going forward.
2. On GoPro's imminent plans for mobile and the cloud
We are now in the final phases of development and testing of a new mobile app that'll allow users to seamlessly trim and share the best photo and video moments captured on a GoPro. We expect to launch this experience before the end of summer. We are also testing an alpha version of our cloud service which will support a seamless offloaded of content from GoPro cameras to be managed and viewed on other devices. -- Nicholas Woodman
GoPro is striving to expand its role from "just" a hardware-centric business to also becoming a "media" company -- a long-term vision that incidentally helped it command a higher valuation with its IPO just more than a year ago. Part of that transition requires helping GoPro camera users more easily create and manage content recorded by their various devices, which is where the cloud service and more effective photo and video editing mobile apps come into play. When these apps and services are released, then, investors would do well to keep a close eye on how consumers respond.
3. On GoPro's newest incremental revenue opportunity
GoPro content has the potential to generate additional revenue streams overtime. Yesterday we unveiled GoPro Licensing, a Content Licensing Portal that marketing professionals can use to search, sort and license content from GoPro's rapidly growing library. The tool also offers an opportunity for our vast community of GoPro contributors including athletes, musicians, professionals and consumers to earn money and rewards for their content. -- Nicholas Woodman
Perhaps more importantly, another crucial piece of GoPro's media plans involves figuring out how to most effectively monetize that content. Of course, it's still too early to know how well GoPro's new content licensing portal will fulfill that goal in the near term. But it stands to reason that, with a more streamlined interface for doing so, both marketing pros and content creators alike might jump at the chance to make the most of GoPro's treasure trove of incredible footage.
4. On the arrival of GoPro's quadcopter
[A]s we've shared, we're releasing a quadcopter in the first half of 2016. And of course, we're very optimistic about our ability to excite the consumer with the differentiated quadcopter capture solution. And we think that again our distribution coupled with our brand GoPro is going to really helped take quads even more mainstream then they are today and provide a much improved out of box user experience. -- Nicholas Woodman
More specifically, Woodman made the quadcopter announcement at Recode's Code Conference 2015 in May. But now, his most recent comments shed light on the fact that GoPro is not only still expecting an early 2016 release, but also anticipates differentiating its drone at least in part with an improved user experience. Exactly how GoPro intends to implement these improvements remains to be seen, but Woodman also noted earlier in the call that his team is "having a blast testing and refining this differentiated product, one that we believe will be the ultimate accessory for your GoPro."
That said, drones are still expected to be a secondary revenue stream behind GoPro's core camera line. But the resulting contribution could still be significant if GoPro can grab a meaningful slice of the estimated $1.9 billion consumer drone market next year.
5. On what's driving guidance
On a year-over-year basis, we anticipate increased revenue across all channel and [geographies], with particular strength in EMEA and APAC and with our distribution partners. Accordingly, we anticipate revenue of between $430 million and $445 million for the third quarter, and at the midpoint of this guidance it represents a 56% year-over-year increase. In the third quarter, we expect our product and channel mix to remain favorable, and our family of three premium $399 and above devices to continue making up of over 50% of our units and revenue. Our gross margin will continue to be above our long-term target [at] 46%, plus or minus 50 basis points. [...] Accordingly, we anticipate EPS to be in the range of $0.29 to $0.32.
GoPro's long-term gross margin target is to maintain a range of 42% to 44%. And analysts, for their part, were only expecting GoPro to achieve third-quarter revenue of $401.3 million, with earnings of $0.22 per share. To explain its outperformance in the past, GoPro has stated its premium HERO4 Black and Silver camera models have comprised more than half of each quarter's revenue and units shipped since they were launched late last year. But thanks to the addition of the physically tiny HERO4 Session camera during the quarter -- which is priced the same as the HERO4 Silver at $399 -- GoPro is now set to enjoy a third high-margin contributor to its already impressive results.
