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GoPro Inc. Sees Red After a Tough Holiday Season

By Steve Symington - Feb 1, 2018 at 7:58PM

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Holiday sales improved after the action-camera maker cut prices, but the market isn't pleased.

GoPro (GPRO -2.68%) announced weaker-than-expected fourth-quarter 2017 results on Thursday after the market closed, including a steep revenue decline as the company struggled to move its wares before reducing prices in December. But that shouldn't come as a big surprise considering shares of the action-camera specialist are still reeling after its preliminary release of selected results a few weeks ago.

With GoPro stock down modestly in after-hours trading as of this writing, let's take a closer look at what drove the business over the past few months, as well as what investors should expect in the coming quarters.

GoPro's new Fusion 360 camera

GoPro's Fusion 360 camera. IMAGE SOURCE: GOPRO.

GoPro's results: The raw numbers

Metric

Q4 2017

Q4 2016

Year-Over-Year Growth

Revenue

$334.8 million

$540.6 million

(38.1%)

GAAP net income (loss)

($55.8 million)

($115.7 million)

N/A

GAAP earnings (loss) per share

($0.41)

($0.82)

N/A

Data source: GoPro.

What happened with GoPro this quarter?

  • These results fell below GoPro's preliminary prediction last month, which called for revenue of roughly $340 million.
  • GoPro also previously warned that the top line would include the negative impact of roughly $80 million for price protection related to its pricing initiatives.
  • On an adjusted (non-GAAP) basis -- which excludes items like stock-based compensation and restructuring costs -- GoPro incurred a net loss of $41.3 million, or $0.30 per share.
  • Camera units shipped fell 40.4% year over year, to 1.361 million.
  • Revenue declines were broad-based, including a 35.9% drop from the Americas, to $175.7 million, a 46.7% decline in Europe, to $89.6 million, and a 29.5% decline in the Asia-Pacific region, to $69.5 million.
  • Adjusted gross margin was 24.8%, below guidance of 25% to 27% and down from 39.5% in the same year-ago period.
  • GoPro incurred an adjusted EBITDA loss of $26.5 million compared with positive adjusted EBITDA of $44.3 million in last year's fourth quarter.
  • The company launched the new Fusion 360-degree camera at Best Buy and B&H Photo during the quarter, in addition to gopro.com.
  • The GoPro Plus service reached 130,000 paying subscribers worldwide. In January, GoPro expanded the benefits of the $4.99-per-month service to include replacement for damaged cameras, mobile cloud backup, and increased storage capacity.
  • Per GoPro's preliminary release last month, the company will exit the drone market after selling through its remaining Karma inventory. GoPro cited "a hostile regulatory environment" in both Europe and the U.S. that it expects to reduce the size of the drone market.
  • GoPro also laid off roughly 20% of its workforce as part of its business restructuring.
  • Ended the year with $247 million in cash and marketable securities.

What management had to say

GoPro's founding CEO Nick Woodman stated:

The fourth quarter demonstrated there is significant demand for GoPro products at the right price. Our opportunity in 2018 is to marry consumer demand for GoPro with new, higher margin cameras launching in the second half that will appeal to existing and new consumers. We are also focused on growing GoPro's subscription service, Plus, and launching new initiatives as subscription becomes an increasingly important focus for our business.

Looking forward

GoPro reiterated that sell-through improved following the implementation of its pricing initiatives. But it's disappointing, to say the least, that GoPro had to learn that lesson in the middle of the crucial holiday season.

GoPro is also targeting adjusted operating expenses of below $400 million in 2018, which would represent a cumulative reduction of over $300 million since 2016.

As Woodman pointed out, the company could still turn things around as it couples those cost reductions with a growing subscription base and the launch of higher-margin cameras later this year. But that's a long time to wait for an already impatient market that's watching as GoPro strives to find growth and return to sustained profitability. Until it shows more tangible signs of improvement -- and unless GoPro is acquired by an interested suitor before then -- I suspect the stock will remain under pressure.

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