Light Guidance Overshadows GoPro's Return to Profitability

GoPro (GPRO 3.80%) released impressive third-quarter 2017 results on Nov. 1 after the market closed, including stronger-than-expected revenue growth and a surprise return to GAAP profitablity. But the action-camera and drone specialist also issued seemingly conservative guidance for its crucial holiday quarter.

Let's adjust our focus, then, to get a better look at how GoPro kicked off the second half, as well as what investors should expect from the company in the coming months.

GoPro's new HERO6 Black camera. Image source: GoPro.

GoPro's results: The raw numbers

Data source: GoPro.  

What happened with GoPro this quarter?

• These results were even better than GoPro had predicted with its preliminary release in early September, when it told investors that revenue would probably arrive near the high end of its previous guidance for $290 million to $310 million. GoPro's previous guidance also called for a quarterly GAAP loss per share in the range of $0.29 to $0.19.
• Revenue growth was broad-based on a geographic basis, with sales up 20% in the Americas, 26% in the Europe, Middle East, and Africa region, and 153% in the Asia-Pacific region.
• On an adjusted (non-GAAP) basis -- which excludes items such as stock-based compensation, acquisition expenses, and restructuring costs -- GoPro generated net income of $21.1 million, or $0.15 per share, well above expectations for adjusted net income of $0.02 per share.
• Adjusted gross margin was 40.1%, down 50 basis points from the same year-ago period but well above preliminary guidance for the metric to arrive near the high end of its original 36% to 38% range.
• Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $35.7 million, compared with an adjusted EBITDA loss of $84.3 million in last year's third quarter.
• The company shipped 1.144 million camera units this quarter, up 12.4% year over year.
• The average sales price climbed 22% year over year, driven by the strong performance of GoPro's premium HERO6 camera line, which launched on Sept. 28.
• GoPro's Karma drone maintained its spot as the United States' No. 2-selling drone priced $1,000 and above. GoPro's HERO5 Black camera was again the No. 1 selling digital image camera in the U.S. before the launch of the HERO6.
• GoPro is on track to begin shipping Fusion, its 5.2K spherical camera, in November.

What management had to say

GoPro founder and CEO Nick Woodman stated:

GoPro has turned a corner, restoring growth and profitability to our business. We are dedicated to growing as an innovative company, while being a vigilant steward of shareholder capital. During the quarter we generated $47 million in cash, and gross margins were 40%. Year over year, we grew revenue by 37% and dramatically reduced operating costs without impacting our product roadmap. We launched our premium-priced HERO6 Black with global on-shelf availability and strong critical acclaim. We are now focused on driving consumer demand to reach our goal of full-year double-digit revenue growth and non-GAAP profitability.

Looking forward

However, for the current fourth quarter of 2017, GoPro expects revenue in the range of $460 million to $480 million, down from $540.6 million in the same year-ago period, which should translate to GAAP earnings per share of between $0.25 and $0.35 and adjusted earnings per share of between $0.37 and $0.47.

By comparison -- and though we don't usually pay close attention to Wall Street's demands -- consensus estimates called for fourth-quarter adjusted earnings of $0.56 per share on revenue of $520.5 million.

Finally, for the full year of 2017, GoPro expects revenue to arrive in the range of $1.305 billion to $1.325 billion, below estimates for $1.35 billion. GoPro also reiterated its expectation for GAAP operating expenses to be below $570 million, and it further improved its goal for adjusted operating expenses to be under $490 million, compared with $495 million previously. The latter represents an impressive 30% operating expense reduction from 2016.

All things considered, GoPro investors couldn't have hoped for better third-quarter results. The HERO6 launch went as planned, Karma maintained its strong position among premium drones, and the company is effectively cutting costs in its quest to recapture sustained long-term profitability. But GoPro's guidance for its most important period of the year left much to be desired.