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What to Expect From GoPro's Q3 Results

By Harsh Chauhan - Oct 28, 2017 at 9:30AM

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Can GoPro fulfill investors' hopes of extending its recent momentum with a strong set of results?

GoPro (GPRO -1.25%) investors are hoping the company will cement its comeback when it releases its fiscal third-quarter results  on Nov. 1.

The company has seen improving demand for its products and investors will want to see how things are going. The company has recently introduced new cameras to tap into fast-growing markets, so consumers' initial response to the new products will tell us if GoPro is going the right way to capitalize on the opportunity.

Here's what investors should expect from GoPro's upcoming results.

A GoPro Fusion camera.

Image Source: GoPro 

GoPro is set to deliver strong growth

Wall Street expects a 30% year-over-year jump in GoPro's sales to $313 million. This tremendous top-line jump is expected to enhance the company's earnings to $0.02 per share, which would be a massive turnaround from last year's adjusted loss of $0.60 per share.

Investors should note that Wall Street's expectations have jumped significantly from three months ago. GoPro's own guidance had called for revenue between $290 million and $310 million and a loss of $0.06 per share. But the company announced last month that its revenue will be at the higher end of that guidance range and that it will post a profit on a non-GAAP basis because of a revamped product lineup.

GoPro has turned its product strategy on its head. The company has trimmed its action-camera model lineup to target different applications. It now has a simplified set of cameras that target different segments of the market.

For instance, the recently released Hero6 Black is billed as its flagship action camera product. Meanwhile, consumers looking for a flagship at a lower price can go for last year's Hero 5Black, while those on a budget can go for the cheaply priced Hero Session series that starts at just $150. GoPro has also entered an entirely new segment with the Fusion 360 camera that's priced at almost $700.

Therefore, GoPro now has a camera for every budget, and this strategy should push the company's sales on the back of a massive reduction in channel inventory. Last quarter, GoPro's inventories dropped 39% on strong customer demand, while the forward weeks of supply in the distributor channel dropped 25%. The forward weeks of supply tells us how much stock the company has on hand based on current demand, so a sharp drop in this number bodes well for the outlook.

The way ahead

The action-camera maker's new products are a clear indication that it has charted out a smart strategy to boost long-term performance.

For instance, GoPro has smartly priced its recently launched Fusion 360 camera, significantly undercutting rival products from Kodak and Garmin that carry price tags of $899 and $799, respectively. This situation sets GoPro on its way to make a dent in the fast-growing 360-degree camera market that's expected to grow at 34% annually over the next seven years.

In addition, GoPro's latest flagship action camera. the Hero6 Black, is priced $100 higher than its predecessor. It's the only upgraded product in GoPro's portfolio this year. The company seems to have done well to differentiate the two by equipping the Hero6 Black with superior resolution and frame rates, as well as better low-light performance.

The singular upgrade should make it easier for the company to manage inventory and pull in stronger sales by charging a premium for its top-of-the-line product for the year. More importantly, a higher price for its flagship product will allow GoPro to increase its margin.

The company anticipates a gross margin range of 39% to 41% in the long run, compared with the third quarter's expected range of 36% to 38%. This outlook indicates that GoPro could extend its strategy of selling a premium-priced flagship followed by a slightly cheaper previous-generation camera in the future to boost its margins. In addition, the pricier 360-degree camera will be another catalyst for the margin.

And the budget action-camera offerings complete GoPro's lineup, putting it in a strong position to take advantage of this market's potential annual growth of 22% through 2022. Therefore, GoPro's strategy of covering all bases of the action-camera market, along with its strategic foray into the 360-degree camera space, should give a nice boost to its revenue and earnings in the long run, as well as set the company up for a strong finish to the ongoing fiscal year.


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