As GoPro Inc (GPRO -0.62%) eyes a recovery in its business, investors are going to want to see progress in the company's upcoming quarterly report due out Feb. 2. When you're assessing the company's performance, here's what to look for. 

Image source: GoPro.

Revenue growth will be key

The biggest disappointment over the past 18 months for GoPro has been a disappointing trend for revenue. GoPro went from a high-growth company to a shrinking company with growing net losses, something no investor wants to see. 

2016's GoPro Hero lineup was much better than a year earlier and we can likely expect revenue in the fourth quarter to exceed last year ($436.6 million), but we don't know by how much. Management said it expects $625 million in revenue, plus or minus $25 million, but Wall Street expects just $575.2 million in revenue. 

When earnings are released on Feb. 2, it'll be key to see how GoPro's sales are trending because it'll tell us whether the Hero lineup is still attractive to customers that already have smartphone cameras in their pockets and if the brand has held up at all in the last year or two. 

Gross margin pressure ahead

One trend that isn't helping GoPro lately is gross margin. In Q4 2014 the company had a gross margin of 48%, but management expects a gross margin of just 40%, plus or minus a percentage point, in the fourth quarter. This 40% level seems like a new normal for GoPro, which will make it harder to make money long-term. 

Competitors continue to enter GoPro's market and smartphone cameras are only getting better. GoPro doesn't have much pricing power, so gross margin pressure could continue in the future. 

Operating expenses should be trending lower

One of the mistakes GoPro's management made over the last two years was increasing operating expenses too quickly. Third-quarter 2016 operating expenses were at an annual run rate of $745 million, which management says will fall to $650 million on a non-GAAP basis in 2017. If operating costs come down, the company has less pressure on revenue and margins in an effort to get back to breakeven. 

The challenge with cutting operating costs is that it's research and development and sales spending that will help GoPro grow long-term. If costs are cut too far, it could make the company's products less competitive in the future. So, keep an eye on operating expense level, but also watch how new product launches and the return of the Karma drone go in 2017. 

Inventory buildout has been a problem

When you look back at GoPro's biggest mistake in 2015, you have to look at building too much inventory. The company set sales targets it couldn't hit and a confusing product line led to an inventory build of product it couldn't sell and eventually writedowns. When a company overbuilds inventory, it is essentially burning cash, so getting the buildout right is key. 

At the end of the third quarter 2016, inventory was $145.2 million, nearly half of the $289.5 million in inventory a year earlier. GoPro is successfully cutting inventory and investors will want to make sure inventory levels are well below the $188.2 million in inventory on the balance sheet at the end of 2015. That will free up cash for the business and give GoPro better footing to stand on. 

GoPro has a challenging year ahead

GoPro is walking a tightrope right now and needs to see traction with both existing products as well as new product launches. If it can get the product execution right, it could be a great stock for long-term investors. But the company has stumbled in execution over the past year, so all eyes are on how revenue, gross margin, operating expenses, and inventory are trending right now.