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Instant Analysis: GoPro to "Reallocate" 7% of Its Workforce

By Rich Duprey - Jan 15, 2016 at 5:07PM

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The action-camera maker says it needs to realign its business with its growth initiatives.

What happened?
After releasing preliminary fourth-quarter earnings results on Wednesday, wearable-camera maker GoPro (GPRO 1.94%) said it would be "reallocating resources" and letting about 7% of its 1,500 employees go.

Does it matter?
The camera maker, whose products have been a hit with extreme-sports enthusiasts, has grown its workforce at a torrid pace, increasing the number of employees by 50% over the past two years. Fueling that growth has been consumers' desire to capture moments in unique ways and share them on social media. According to estimates, the worldwide action-camera market hit a retail valuation of $3.2 billion in 2014, with growth continuing through at least 2019.

But the popularity of action cameras, a segment that GoPro essentially created and still dominates -- it was estimated to have as much as a 72% share of the market at the end of 2014 -- has drawn in more competitors, both from smaller shops like Ion and Veho to large, established players such as Sony, Panasonic, and Garmin (though the latter says it view its Virb cameras as only  a niche product).

The competitive pressures, however, have forced GoPro to backtrack on pricing. Last quarter it admitted it priced its Hero4 Session model too high at just under $400 and had to cut it to $299 to shore up sales. Although models like the 4K video model from Sony can still go for more than $400, more affordable models at around $100 are hitting the market, and that will continue to pressure GoPro.

In announcing the job cuts, or "resource reallocation" -- companies really don't like to say they're firing people -- it said the purpose was "to better align resources to key growth initiatives." Those initiatives have largely been expanding overseas, which last quarter accounted for 58% of its revenue.

GoPro didn't say where it would be trimming the employee fat, but it did say in the third quarter that the near-60% increase in its R&D expense was mostly due to an 80% jump in its global headcount between September 2014 and September 2015. If its growth initiatives still include expanding its presence internationally, then those job cuts are most likely going to hit here, closer to home.

Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends GoPro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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