What happened
Shares of GoPro Inc. (GPRO +3.10%) were down 12.1% as of 3:15 p.m. EDT Thursday after the action camera and drone specialist followed strong third-quarter 2017 results with disappointing fourth-quarter guidance.
More specifically on the former, GoPro's third-quarter revenue climbed 37.1% year over year to $329.8 million, which translated to GAAP net income of $14.7 million, or $0.10 per share. On an adjusted basis -- which excludes restructuring expenses and stock-based compensation -- GoPro's net income was $21.1 million, or $0.15 per share.
By comparison, when GoPro offered preliminary results in early September, it told investors its results would likely arrive near the high end of its previous outlook, which called for revenue in the range of $290 million to $310 million and a GAAP loss per share of $0.29 to $0.19.
IMAGE SOURCE: GOPRO.
So what
"GoPro has turned a corner, restoring growth and profitability to our business," stated GoPro founder and CEO Nick Woodman. "We are dedicated to growing as an innovative company, while being a vigilant steward of shareholder capital."
To be sure, GoPro's sales were driven by strong demand for both its HERO5 Black camera, which was again the United States' No. 1-selling digital camera, and the Karma drone, which stood its ground as the country's No. 2-selling drone priced above $1,000. But it wasn't just domestic demand that was strong; sales in the Americas climbed 20%, revenue in the EMEA region rose 26%, and Asia-Pacific sales skyrocketed 153%.
GoPro also launched its next-gen HERO6 camera on Sept. 28, 2017, and is on track to release Fusion, its 5.2K spherical camera, in November.
Now what
In the fourth quarter, however, GoPro anticipates revenue ranging from $460 million to $480 million and adjusted earnings per share in the range of $0.37 to $0.47. Both figures were far below investors' expectations for adjusted earnings of $0.56 per share on sales of $520.5 million.
During the subsequent conference call, GoPro CFO Brian McGee noted that the company is "pleased" that its revenue split between the third and fourth quarters is "much better than in prior years" -- an indication that some of GoPro's Q3 strength was due to orders being pushed forward. At the same time, he pointed out that GoPro's expected full-year results "are in line or better than the goals that were established since the beginning of the year."
Woodman later insisted that GoPro is "actually feeling really good about our guidance for Q4," noting that they achieved their goal of returning to double-digit revenue growth and profitability slightly earlier than expected in the third quarter. In addition, Woodman revealed that GoPro has seen softer sell-through of its HERO5 following the HERO6 launch, but expects that will change in the holiday season as promotional programs kick in.
In the end, it's clear that GoPro's fourth quarter won't be as massive as the market had hoped, so it's no surprise to see shares down today. But this doesn't seem to be an indication of underlying weakness or discouraging trends, but rather the product of a disconnect between reality and the market's prediction that GoPro was supposed to end the year with a more pronounced bang. Because this should leave GoPro poised to continue outperforming in the coming year, I think long-term investors should be more than pleased with where GoPro stands today.
