There wasn't a lot to get excited about with GoPro Inc.'s (NASDAQ:GPRO) earnings this week, even though investors had gotten a preview of the weak quarter early in January. A surprise price cut for the full line of Hero cameras hit both top-line revenue and gross margin in the fourth quarter and could result in a hangover into 2018. 

In Thursday's quarterly report, we got a little more clarity as to what happened in the quarter and what management sees in the future. 

GoPro's Hero lineup of cameras.

Image source: Getty Images.

Why GoPro's quarter was so bad

GoPro's revenue was down 38.1% to $334.8 million, and net loss was $55.8 million, or $0.41 per share, which is terrible for the all-important holiday quarter. But the biggest red flag for GoPro was the 40.4% decline in units shipped to 1.36 million units in the quarter. Even the launch of Fusion, GoPro's spherical camera, didn't goose sales in the quarter. 

Management tried to downplay the weak demand by saying that demand for GoPro cameras is high if the price is right. The implication is that the price reduction the company put in place in December drove additional sales. But that price reduction also showed that GoPro doesn't have any real pricing power

CEO Nick Woodman did say that cameras introduced in the second half of 2018 should help improve margin, so investors will want to watch margin trends as the year goes on to see if the company can deliver on that prediction without giving up quality. 

Are services the future?

One interesting shift could be GoPro's move to services. Woodman announced this week that the cloud service GoPro Plus is getting some enhancements, including more storage and a warranty feature for broken cameras. And management said there will be more service offerings in the future. 

In the earnings release, GoPro said it had 130,000 subscribers to GoPro Plus, which would mean approximately $7.8 million of annual service revenue. Put another way, that's just 3% of the number of cameras GoPro shipped in 2017, so adoption is extremely low. 

GoPro may see services as an attractive business because of the ongoing revenue that comes with services, but if the value isn't attractive for customers, the offerings won't be successful. If fewer than 3% of the people who have bought GoPro cameras in the past year have also paid for GoPro Plus, that's not a great start to the service business. 

GoPro hasn't found its way

There's no easy answer to GoPro's troubles, and if the stock doesn't turn around, the company may start looking to sell itself. I think in 2017 we saw that GoPro is having to start competing with lower-price cameras, which is bad news for profitability in the long term. And if new products like the Fusion camera aren't selling in significant numbers, the company will have a tough time regaining profitability in 2018. 

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