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Why GoPro Shares Jumped Friday

By Howard Smith – Nov 5, 2021 at 2:14PM

Key Points

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The action camera maker looks to be on track for its first profitable year since 2015.

What happened

Shares of GoPro (GPRO 1.15%) are jumping today after the action camera maker reported a very profitable third quarter, ended Sept. 30. As of 12:40 p.m. EDT today, the stock was up 6.6%, down from gains of almost 14% earlier in the session. And there was a reason for that backtrack. 

So what

The company reported net income of $312 million for the quarter, which could lead it to its first profitable year since 2015. But looking a little closer, investors realized that while revenue did grow 13% year over year, it amounted to just $317 million. So how does a company earn $312 million in net income with just slightly more than that in total revenue? The answer is a one-time income tax benefit. But going into its typically strong holiday quarter, the company is still on track for a profitable 2021, even without that tax-related gain. 

kids with action camera in the waves at the beach.

An action camera at the beach. Image source: Getty Images.

Now what

GoPro generated strong free cash flow of $166 million in the quarter, and management raised its margin and profitability guidance for the year. Adjusted gross margin in the quarter was 43.8%, up from 36.2% in the year-ago period. On the company's conference call with investors, CEO Nicholas Woodman summed up the results, saying, "Strong demand, an effectively managed supply chain, and channel inventories combined with a successful new product launch to yield our highest gross margins since 2015." As mentioned, that also just happened to be the company's last profitable year.

GoPro has been working to convert its business to become more of a direct-to-consumer subscription business for its users and fans. In the most recent quarter, the company grew its subscriber count and subscription revenue by 168% and 143%, respectively, year over year. 

That helps explain how, even without the tax benefit, this quarter helped the company get back on the road to profitability. While the earnings might not have been as eye-popping as they looked at first glance, it was still a nice step forward for GoPro, which is why investors are still giving shares a boost today. 

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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