GoPro Inc.'s (GPRO 0.36%) share decline from nearly $90 to under $10 didn't happen because people stopped using GoPro cameras. It happened because GoPro lost focus of its position in the camera market and compounded its problems by building too much inventory, resulting in massive losses over the last two years. 

CEO Nick Woodman and team have had to reconfigure the business and give up on aspirations of becoming a media company, but GoPro finally seems to be better off for it. And after second-quarter results, it looks like GoPro is finally learning from its mistakes and positioning itself for success going forward. 

GoPro Karma drone viewed from the side.

Image source: GoPro.

Inventory kills

One of the biggest challenges of a product company today is building inventory. A product company has to build enough inventory to meet demand, but not so much that there's excess supply when the next-generation product comes out, which was what led to GoPro's losses in 2015. 

Inventory finally seems like it won't be a problem for GoPro in 2017. Management said inventory was down 39% sequentially and down 25% in the channel through distributors and retailers, which GoPro doesn't fully control. Decreasing inventory reduces risk of writedown losses for GoPro and will lessen discounting once Hero 6 cameras are released. Long term, managing inventory more effectively is one thing the company has to get right to survive. 

Realizing the smartphone is the center of the GoPro experience

For years, the GoPro camera has been a great capture tool, but getting images to a usable location, like social media, has always been a pain. And GoPro has been spending a lot of time addressing that pain point. On the second-quarter conference call, COO Charles Prober said: 

Our second priority is to make the smartphone central to the GoPro experience. Aligning with the smartphone requires us to deliver products with very intuitive designs.

This also came shortly after highlighting the company's execution on Hero 6, which will be launched later in the year. With the new auto edited videos from QuickStories already released for Hero 5, we could see something like one-click sharing to social media or even easier offloading via Bluetooth to a smartphone. 

GoPro is addressing the biggest weakness its cameras have always had and that should remove a barrier to entry for some customers. 

If new products hit, 2017 could be big for GoPro

If GoPro gets its strategy right, it could be a big financial winner for investors. I would argue that management is still being conservative with its guidance for 2017, particularly with Hero 6 and the Fusion 360 camera on the horizon. Third-quarter guidance was for $300 million in revenue, plus or minus $10 million, which is only slightly above second-quarter revenue of $296.5 million. That may be partly due to clearing out Hero 5 inventory in anticipation of Hero 6, but there should be a surge of sales ahead of the holidays if new products are executed well. 

For investors, GoPro's execution in reducing inventory and turning the focus to making its cameras easier to use should be a step in the right direction. And demand may be even stronger than investors think, particularly after a quarter that showed 34% growth year over year. I'm still bullish on GoPro's future, and learning from the mistakes of the past is a big reason why.