GoPro Inc. Reiterates Its Guidance Despite a Strong Third Quarter

GoPro Inc. (GPRO 0.29%) announced better-than-expected third-quarter 2018 results on Thursday after the market closed, highlighting a positive consumer response to its new HERO7 cameras and encouraging growth from its subscription services.

But thanks in part to its relative outperformance in Q3, management also offered underwhelming guidance for the impending holiday season.

So with shares down more than 20% early Friday in response, let's zoom in for a better idea of how GoPro started the first half, as well as what we should expect in the coming quarters.

Image source: GoPro.

GoPro's results: The raw numbers

Data source: GoPro.

What happened with GoPro this quarter?

• Sales were well above the high end of GoPro's guidance provided in August, which called for $260 million to $280 million.
• Adjusted for items like stock-based compensation and restructuring expenses, GoPro incurred a non-GAAP net loss of $6.1 million, or $0.04 per share, well below the $0.07 loss most investors were expecting.
• Adjusted gross margin improved 2 percentage points sequentially to 33%.
• Adjusted EBITDA was $6.2 million, down from $35.7 million in the same year-ago period.
• GoPro shipped 1.095 million camera units this quarter, down 4.3% year over year, but with solid demand for its HERO7, HERO6, and HERO5 Black cameras. Together, these models comprised over 60% of total revenue and units shipped.
• HERO7 Black, in particular, achieved the strongest first-month sell-through of any camera in GoPro history.
• Average selling prices were $261, down slightly from $264 last quarter. 
• Inventory ended the quarter at $123 million, GoPro's lowest third-quarter level since 2014.
• GoPro commanded a 96% dollar share and 87% unit share of the action camera market this quarter.
• The Fusion 360 spherical camera captured a 47% dollar share of its respective market.
• The $4.99-per-month GoPro Plus subscription service climbed 16% sequentially from last quarter, to 185,000 active paying subscribers.

What management had to say

CEO Nick Woodman said: "GoPro completed a successful third quarter highlighted by a very strong reception and global demand for HERO7 Black. We expect to achieve profitability in Q4 and for the second half of 2018, and exit the year with low channel inventory to be well positioned for Q1 2019."

During the subsequent conference call, Woodman added: "Because of retailer demand for HERO7 Black, we were able to outperform in Q3 in terms of selling. And as a result, we are adjusting Q4 revenue, while maintaining revenue guidance for the second half."

Also during the call, CFO Brian McGee elaborated that "the second half is playing out how we expected, albeit with a different revenue split between Q3 and Q4."

Looking forward

More specifically, GoPro now anticipates fourth-quarter revenue between $360 million and $380 million -- down from its previous estimates between $380 million and $400 million. But even the bottom end of that range marks a return to top-line growth from $334.8 million in last year's fourth quarter.

However, McGee also noted that GoPro plans more promotions during the fourth quarter in an effort to sustain its market share -- which will have a modest negative effect on both revenue and earnings. This helps explain why GoPro reduced both ends of its prior fourth-quarter guidance by $20 million, marking a slight net negative adjustment from its previous second-half expectations (considering it exceeded the midpoint of its Q3 outlook by roughly $16 million). 

I'm not convinced that merits the 22% haircut the market is giving GoPro today -- though it is worth noting that shares rallied nearly 20% in the three days leading up to this report.