GoPro is in the process of laying off around 200-300 employees this week. This continues a string of job cuts at the company over the last two years. The hits to the company were largely concentrated in its aerial division, the segment of the company responsible for its Karma drone.
In a letter to impacted employees GoPro explained these cuts are part of a larger restructuring “to better align our resources with business requirements”.
The belt-tightening won’t come as much of a surprise to those following the action camera maker’s moves into drones over the past several years. GoPro’s Karma drone has been a headache from the start, both with regards to its technical limitations and a mass recall after reports stated drones were dropping from the sky late last year.
The company chalked the potentially dangerous mishap up to the battery disconnecting mid-flight. GoPro temporarily halted sales on the product, bringing it back to market in February. The return prompted some positive financials for the company, and sales did ultimately take off after the reboot, but the Karma’s appeal has been dulled by one-time partner DJI, which introduced its own portable drones, the Mavik Pro and Spark to the market.
The two companies had reportedly been working on the project that would ultimately become the Karma, only to ultimately part ways. Of course, DJI’s wealth of experience in the space gave the company a decided leg up on GoPro’s latest attempt to diversify. The company also reportedly sought partnerships with other drone makers including Southern California’s 3DR.
Diversification has been an important part of the CEO Nick Woodman’s business plan in recent years, as the market has been flooded with competing action cameras. GoPro is still synonymous with the space, but the prevalence of improved smartphone cameras, along with far cheaper GoPro alternatives, have forced the company to explore additional revenue streams, including drones and VR.
But it’s been precisely those attempts to diversify that have been on the chopping block for the company. GoPro’s entertainment division was a key target during a layoffs in late 2016.
The company had one of its worst years on record. Last quarter was a bit better, with the following highlights.
In the third quarter, GoPro achieved strong revenue growth, gross margins and adjusted EBITDA. Revenue was $330 million, up 37% year-over-year, gross margins were approximately 40%, and adjusted EBITDA was $36 million, up $109 million year-over-year.
GoPro strengthened its balance sheet, generating $47 million in cash, ending the third quarter with a cash balance of $197 million.
GAAP net income for the third quarter was approximately $15 million, or $0.10 per share — a sharp improvement over a GAAP net loss of $104 million in the third quarter of 2016. Non-GAAP net income for the third quarter was $21 million, or $0.15 per share.
Average sales price (ASP) increased by 22% year-over-year and 3% sequentially. Increased ASP was a primary contributor to stronger margins in the quarter and driven by the strong performance of the premium-priced HERO6.
Quarterly operating expenses reached a 3-year low. GAAP operating expenses were down 6% sequentially and down 7% on a non-GAAP basis. GoPro is tracking toward a non-GAAP operating expense goal of less than $490 million in 2017 (or approximately $570 million of GAAP operating expenses), down over 30% year-over-year.
HERO6 Black launched on September 28. Powered by GoPro’s custom-designed GP1 processor, HERO6 achieves an entirely new level of performance including stunning 4K60 and 1080p240 video and the most advanced video stabilization ever achieved in a GoPro. HERO6 Black launched globally with strong sales execution and a 93% channel fill rate at retail.
Prior to the HERO6 launch, HERO5 Black was the best-selling digital image camera in the U.S. for four straight quarters — holding that chart position since its launch in 2016, according to The NPD Group’s Retail Tracking Service.
Fusion will begin shipping in November. Fusion is a 5.2K spherical camera which captures a 360-degree perspective, so users never miss a shot. With the GoPro App, Fusion users can share footage as VR content or, using the app’s OverCaptureTM feature, “punch out” a traditional fixed-perspective video or photo from any angle in the spherical shot. OverCapture is scheduled to launch in the GoPro App in January.
GP1 processor maximizes GoPro’s capabilities. The new chip enables twice the video frame rates, improved image quality, dynamic range, low-light performance and dramatically improved video stabilization over previous HERO camera generations. GP1 automatically enables vibrant videos and stunning photos without forcing users to manage complex image settings. GP1 also advances GoPro’s capabilities in computer vision and machine learning, enabling HERO6 to analyze visual scenes and sensor data for improved image quality and automated QuikStories.
GoPro achieved strong revenue growth across all key regions. Growth in the Americas was up 20% year-over-year. EMEA was up 26% year-over-year. APAC was up 153% year-over-year. More than 50% of GoPro’s revenue was generated in markets outside of the U.S. in the third quarter.
Strong momentum continues in key Asian markets. GoPro is seeing strong and sustained results in Asia. Sell-thru year-over-year unit growth in Japanwas up over 99% and China was up 25%, according to GfK.
GoPro’s drone, Karma, was the #2 selling drone in the U.S. priced $1,000 and above during the six months ending September 2017, according to the NPD Group’s Retail Tracking Service.
The Quik Mobile Video Editing App was installed 18 million times year-to-date. Third quarter monthly active users was up 30% sequentially and 155% year-over-year.
GoPro gained more than 900,000 new social media followers in the third quarter. Instagram followers were up 30% year-over-year to more than 14 million, with more than a 470,000 increase in international followers.
GoPro content was viewed more than 550 million times in the first nine months of 2017, up more than 27% year-over-year. In the same period, GoPro content on YouTube saw an 85% increase in median organic viewership per video.
Still, we believe the stock will be range bound in 2018, and a major catalyst is needed to drive it higher.
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