What happened
Shares of GoPro Inc. (GPRO 3.53%) plummeted as much as 33% early Monday after the action-camera specialist announced disappointing holiday-quarter results, as well as its impending exit from the drone market.
GoPro stock subsequently recovered the bulk of its losses, however, rising to trade down "just" 11.2% as of 2:00 p.m. EST after reports that the company is seeking a potential sale.
IMAGE SOURCE: GOPRO INC.
So what
Regarding the former, GoPro on Monday morning announced that it now expects fourth-quarter revenue to arrive at roughly $340 million -- significantly below its latest guidance for sales in the range $460 million to $480 million. GoPro also called for adjusted operating margin of between 25% and 27%, a far cry from guidance for 41% to 42%.
To be fair, GoPro's preliminary results include the negative impact of roughly $80 million in price protection related to the recent price reductions of its HERO6 Black, HERO5 Black, and HERO5 Session cameras, as well as its Karma drone. But it would have still fallen well short of the low end of its original guidance even after adjusting for that big charge.
As GoPro CEO Nick Woodman explained:
As we noted in our November earnings call, at the start of the holiday quarter we saw soft demand for our HERO5 Black camera. Despite significant marketing support, we found consumers were reluctant to purchase HERO5 Black at the same price it launched at one year earlier. Our December 10 holiday price reduction provided a sharp increase in sell-through.
If that weren't enough, GoPro also announced that it will exit the drone market after selling through its existing Karma drone inventory. The company blamed "a hostile regulatory environment in Europe and the United States," which it believes will likely reduce the size of the drone market.
GoPro is also laying off around 20% of its total workforce and will restructure the business in the coming months.
Now what
Finally, GoPro shares partially rebounded late in the morning after CNBC reported that the company has hired JPMorgan to explore a potential sale. Woodman had already told CNBC earlier in the day that he would be willing to consider opportunities "to unite with a bigger parent company to scale GoPro even bigger[...]."
But it's unclear whether GoPro has any interested buyers at this stage. So, for now, I think investors would do well to focus first on GoPro's underlying business rather than on the prospect of any potential acquisition premium. Unfortunately, as it stands, it seems an understatement to say that GoPro's early quarterly results leave a lot to be desired.
