GoPro Inc.'s (GPRO -6.10%) stock hasn't gone anywhere in 2017, hovering around $9 per share for most of the year. Operationally, however, the company has been performing well and quietly raising expectations.
It's sometimes hard to notice financial improvement from a company like GoPro because the holidays are such a big part of its business, but there are signs of life there. And investors would be wise to pay attention to its financial improvement.
Image source: GoPro.
2017 is much better than expected
There's no question 2016 was a terrible year for GoPro. Revenue of $1.19 billion and a loss of $419.0 million, or $201.2 million on a non-GAAP basis, isn't good for any company. But the company has beaten expectations in the first two quarters of the year, and if the third and fourth quarters are anything like the first half of the year, it could be profitable once again.
Here's a look at its performance in the first half of the year plus guidance for the third quarter compared to financial performance a year ago.
| Metric | Q1-Q2 Actual + Q3 Guidance | Q1-Q3 2016 |
|---|---|---|
| Revenue | $815.1 million | $644.9 million |
| Gross margin | $285.2 million | $249.8 million |
Data source: GoPro earnings reports.
On top of the revenue and margin improvements, GoPro has cut operating costs and now expects 2017 GAAP operating expenses to be below $570 million with non-GAAP operating expenses below $495 million.
If we assume that fourth-quarter 2017 revenue is $550 million (up only slightly from $540.6 million in Q4 2016), for total revenue of $1.37 billion, and gross margin is 38% in the quarter we could see GoPro get close to profitability. Gross margin for the year would be $494 million if we add the projection above and essentially be even with expected non-GAAP operating costs.
I lay out these projects while keeping in mind that GoPro beat its own estimates in the first and second quarter of 2017 and has grown revenue 27% so far in 2017. I think it's safe to assume now that GoPro will easily surpass $1.37 billion in revenue and may post a nice operating profit for the year.
The market may not be expecting GoPro's resurgence
Despite improving financial performance, the market hasn't given GoPro much credit for its progress in 2017. If you look at current analyst estimates for $1.33 billion in revenue and a $0.05 loss per share on a non-GAAP basis, I think GoPro is already set to easily beat expectations.
Of course, this bullish stance is predicated on the Hero 6 lineup of cameras being a solid upgrade that drives holiday sales this year. If it is, the stock could be set up for a run higher and GoPro could post a surprise profit for the year.
