GoPro (GPRO +5.76%) seems to have finally figured out how to run its business in a sustainable way, and if it's lucky, it may even start squeaking out a profit. There's even a possibility that the company will hit double-digit revenue growth this year -- management's guidance range is 7% to 10% for 2019.
The company's improving condition is no accident. It's the result of a turnaround years in the making. Here's what GoPro has gotten right, and where it might improve.
Image source: GoPro.
Good, better, best is paying off
The biggest shift GoPro made a few years ago was winnowing its complex line of action cameras down to three, which can be simply described as good, better, and best. This makes it easy for consumers to understand what they're getting.
One benefit of that simplicity is that GoPro can more easily manage inventory and pricing, which was a challenge just a few years ago. For example, in the fourth quarter of 2015 the company recorded $118 million of losses from excess inventory and price protections, largely from a bloated, complex lineup that didn't resonate with customers.
Today, the lineup is simple and customers are even choosing higher-end devices, as shown by the average sale price increasing 8% versus a year ago to $288. Volume is flat, but rising prices are starting to drive growth and the good, better, best strategy is paying off.
Recurring revenue at GoPro
One great add-on GoPro introduced was Plus, a $4.99-per-month subscription package that offers automatic picture uploading to the cloud. At the end of the first quarter, the company had 220,000 subscribers, and it's just beginning to roll the service out to more countries and retail partners.
The challenge is that there's no obvious way for GoPro to increase its services offerings. Editing software comes free with most phones and apps, and even cloud storage costs are coming down. If it can increase subscriptions to Plus, it'll be a high-margin win for the company, but it's by no means clear that it will be able to maintain anything like its 50% annual subscriber growth rate.
GoPro's expansions have failed
While GoPro's position in action cameras is strong, it has failed to gain traction with other types of devices. Sales of its Karma drone crashed nearly as quickly as they took off, and so far, the company's high hopes for the 360-degree camera market aren't panning out.
The company's theory when it developed the GoPro Fusion camera was that virtual reality headsets would be commonplace by now, creating a need for 360-degree image and video capture. But VR's big surge has yet to arrive, and that's left the Fusion in command of a solid market share, but in a tiny market. Also, competitors are lowering their prices -- $200 for a 360 camera isn't unreasonable -- forcing GoPro to follow suit. Even if it captures a large fraction of sales, this may not turn out to be a lucrative market.
GoPro is what it is
It's great to see GoPro growing in its core device market again, but for investors, the challenge is that it might not be able to grow beyond that market. That's worth keeping in mind as 2019 results come out, because these growth days may not last long.
