Back to top

Image: Bigstock

GoPro (GPRO) Q2 Loss Narrower than Expected, View Stays

Read MoreHide Full Article

GoPro, Inc. (GPRO - Free Report) added to its string of quarterly losses with second-quarter 2016 results, as the company struggles to broaden its customer base for its action-video cameras. However, the action camera maker’s third consecutive quarterly loss was largely expected by investors, ahead of the launch of a new flagship camera and drone.

GoPro’s second-quarter 2016 adjusted loss (with stock-based compensation adjustments) of 64 cents per share was narrower than the Zacks Consensus Estimate of a loss of 72 cents. This 11.1% beat follows three consecutive misses by the company.

Shares rose over 2% in after-hours trading in the aftermath of the results. In addition to the better-than-expected numbers, investors likely took heart from the company’s assurance to be profitable by the fourth quarter of 2016.

Also, non-GAAP loss of 52 cents for the quarter was in stark contrast to the earnings of 35 cents in the comparable quarter last year.

Continued top-line contraction, coupled with high operating expenses (particularly R&D expenses) extended losses for the company.

Inside the Headlines

GoPro’s revenues plunged to close to half of the prior-year quarter’s tally, to $220.8 million (down 47.4% from $419.9 million in second-quarter 2015). Despite the terrible decline, the figure beat the Zacks Consensus Estimate of $213 million. Revenues continued to be weighed down by slowing demand for GoPro’s Hero gadgets, which is gradually shrinking in a competitive, saturating market. Also, sales took a hit after GoPro had to slash the price on its latest model, the Hero4 Session, twice.

The company generated about 48% of its revenues from international sales, with strong growth in China and Japan.

For the quarter, non-GAAP gross margins shrank to 42.4%, compared to 46.4% in the second-quarter 2015.

Non-GAAP operating loss came in at $89.3 million, as against an operating income of $65.8 million generated last year. R&D expenses, which shot up 55% year-over-year driven by investment in product development, dragged operating loss. Also, sales and marketing expenses (up 34% year-over-year) added pressure.

In the quarter, the GoPro Mobile App was downloaded 2.6 million times leading to over 30 million cumulative downloads. On the other hand, GoPro Studio installations totaled about 1.5 million.

In addition, the rebranded Quik and Splice mobile apps have doubled their combined monthly active users to 3.7 million, while doubling the amount of share content each month. These apps have 37 million combined cumulative downloads.

Notable Developments

In the last quarter, the company had recorded an $8 million charge related to inventory write downs, excess purchase commitments and marketing development funds. This follows the tens of millions of charges that the company booked before that in connection to the re-pricing of its HERO4 camera, excess inventory and obsolete tooling.

Last quarter, GoPro also said it would cease production of certain entry-level cameras, in its attempts to turn around its slumping business.

On the other hand, the company made significant improvements to its editing software over the quarter. Their Quik, Splice and GoPro editing apps are experiencing a robust adoption. In its efforts to expand its user base, GoPro is committed to tap into the mobile market by enabling users to edit footage shot on their smartphones.

The company plans to release its much-awaited quadcopter drone – Karma – ahead of the holiday season, citing that it is in the process of making the product “much more than a drone”. Also, its HERO5 line, which is said to boast many innovative and enabling features that will radically simplify user experience, is scheduled for launch later this year.

Liquidity

Exiting the quarter, the company had cash and cash equivalents of $163.5 million, down significantly from $279.7 million at the end of Dec 2015.

Guidance Reiterated

Despite such disappointing results, the company reiterated its guidance for 2016. It continues to project revenues in the range of $1.35–$1.5 billion. The company expects to have a robust second half, and is optimistic about the success of its hardware launches this year. In fact, the company expects to return to profitability in the fourth quarter of 2016.

Our Take

In recent months, the company has been struggling to achieve its earlier growth and go beyond its trademark action cameras. Its latest camera, the Hero 4 Session, failed to hold consumers’ interest at a time when the market for action cameras is becoming increasingly saturated. It seems that the market is flooded with cheaper and better alternatives to GoPro’s HERO series, severely hurting its bottom line. Competitive forces from Sony Corporation and China's Xiaomi are also exerting pressure on GoPro’s market share.

Recent events and consequent share price reactions have made GoPro one of the worst performing recent IPOs. GoPro's shares are down over 81% over the past year.

GOPRO INC-A Price and EPS Surprise

GOPRO INC-A Price and EPS Surprise | GOPRO INC-A Quote

Now, it seems like GoPro is betting huge on the success of Karma to expand its client base. The company is facing pressure to establish a more mainstream market for its cameras, but tough competition from smartphones from brands such as Apple Inc. (AAPL - Free Report) and Samsung Electronics Corp. are making it difficult for the company.

Whether GoPro can successfully innovate beyond its action cameras and whether its foray into consumer drones and virtual reality will help turn the fortunes around for this Zacks Rank #3 (Hold) stock, remains to be seen.

A better-ranked stock that could be worth a look now is Callaway Golf Co. , sporting a Zacks Rank #1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>


Unique Zacks Analysis of Your Chosen Ticker


Pick one free report - opportunity may be withdrawn at any time


Apple Inc. (AAPL) - $25 value - yours FREE >>

GoPro, Inc. (GPRO) - $25 value - yours FREE >>

Published in