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Why GoPro, Inc. Stock Plunged Today

By Steve Symington – Nov 2, 2018 at 2:23PM

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The action-camera specialist fell despite beating quarterly expectations. Here's what happened.

What happened

Shares of GoPro Inc. (GPRO -1.20%) were down 22.4% as of 2:30 p.m. EDT Friday after the action-camera specialist announced strong third-quarter results, but followed with underwhelming fourth-quarter guidance.

On the former, GoPro's quarterly revenue declined 13.3% year over year to $285.9 million, translating to an adjusted net loss of $6.1 million, or $0.04 per share. That top line arrived above GoPro's latest guidance, which called for sales of between $260 million and $280 million. And most investors were anticipating a wider adjusted net loss of $0.07 per share.

GoPro's HERO7 White camera falling into water with image of smiling man in swimsuit on the display

IMAGE SOURCE: GOPRO.

So what

GoPro attributed its outperformance to both effective expense management and stronger-than-expected demand for its cameras -- particularly the high-end HERO7 Black, which achieved the best first-month sell-through in company history following its launch in September. The GoPro Plus subscription service also saw active paying subscribers climb 16% from the second quarter, to 185,000.

"GoPro completed a successful third quarter highlighted by a very strong reception and global demand for HERO7 Black," added founder and CEO Nicholas Woodman. "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."

Now what

During the subsequent conference call, however, management explained that with strong retailer demand last quarter, revenue originally modeled for the holiday season was essentially shifted ahead to Q3. As CFO Brian McGee put it, "The second half is playing out how we expected, albeit with a different revenue split between Q3 and Q4."

So, GoPro now expects fourth-quarter revenue of between $360 million and $380 million, down $20 million from both ends of its previous range. It also warned that its revenue and margins will be negatively impacted by an increase in planned promotions in the fourth quarter, though it continues to expect a return to adjusted profitability in the process.

In the end, this quarter was essentially a zero-sum game. And considering shares popped nearly 20% this week leading up to GoPro's announcement -- a likely indication that many had hoped it would beat expectations and raise its outlook rather than simply reiterate it -- the stock is responding in kind today.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends GoPro. The Motley Fool has a disclosure policy.

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