Back to top
Read MoreHide Full Article

GoPro, Inc.’s (GPRO - Free Report) earnings remained in the red for the second consecutive quarter, as it reported second-quarter 2017 adjusted loss of 53 cents per share. The company has lost money in six of the last seven quarters.

However, this time, the action camera maker’s bottom-line figure crushed expectations, as GoPro’s adjusted loss of 14 cents trumped the Zacks Consensus Estimate of a loss of 34 cents by a whopping 58.8%. It seems that the company’s substantial cost-cutting initiatives were highly successful in stemming its earnings decline.

On a GAAP basis, the company reported a loss of 22 cents for the quarter, which was down 66.7% year over year.

The company posted better-than-expected revenue numbers for the quarter and also reduced its operating expenses significantly. Investors’ reaction was pretty buoyant to the results, as its shares shot up about 14.3% in pre-market trading in the aftermath of the results.

Inside the Headlines

GoPro surprised investors with its sales figures, as its quarterly revenues grew an impressive 34.3% from the prior-year quarter tally to $296.5 million. This marked the company’s third consecutive quarter of revenue growth after four successive quarters of sales declines. The top line also beat the Zacks Consensus Estimate of $271 million.

The revenue growth was driven by robust sales of the latest Hero5 cameras, Karma growth and strong accessory revenue. Further, more than half of the revenue came from overseas. On a year-over-year basis, the APAC region boasted the strongest revenue growth at 67%.

HERO5 Black was the best-selling digital imaging device in units and dollars in the U.S. for the second consecutive quarter. Further, Karma was the second best-selling drone brand in the U.S. in the second quarter. Karma was recently launched in international markets, including the UK, Germany, France, Korea and Japan.

For the quarter, R&D expenses were down 40.4% year over year. In addition, sales and marketing expenses plunged 33.2% year over year. Second-quarter operating expenses came in at $156.8 million, down 35.5% year over year.

Non-GAAP gross margins contracted 620 bps year over year to 36.2%. Non-GAAP operating loss came in at $9.3 million, down 89.6% from $89.3 million generated last year.

The company focused on improving inventory and channel management, which resulted in a 39% reduction in inventory sequentially, and forward weeks of supply in the channel are down 25%. This bodes well for GoPro’s upcoming product launches.

Restructuring

GoPro has been aggressively cutting costs in recent times through a series of layoffs and revealed plans to cut 270 jobs in March this year. Last year, the company conducted two rounds of layoffs, cutting 7% and 15% of its workforce in January and November, respectively. GoPro also shuttered its entertainment and media business as part of its restructuring.

GoPro also shifted most of its software development to a more economical location like Romania, while its customer support and administrative services have been moved to the Philippines. The company streamlined the supply chain and also made changes to its product packaging and shipping.

GoPro believes that its restructuring efforts will help it bring down full-year GAAP operating expenses below $585 million and non-GAAP operating expenses below $495 million. The company also assured that it would bring down operating expenses by over $200 million and return to EBITDA profitability in 2017.

In addition, it affirmed that these cost-cutting efforts will not interfere with its pipeline of hardware and software product launches.

GoPro, Inc. Price, Consensus and EPS Surprise

Notable Developments

The company rolled out QuikStories (a new GoPro App feature) last month, which automatically pulls footage from a HERO5 camera and creates ready-to-share videos on the user’s phone. QuikStories creates polished, shareable videos featuring customizable music, filters and effects. The company is highly optimistic about this product and expects it to become a game changer.

In April, GoPro announced the development of Fusion, a 5.2k spherical camera that is designed to be capable of capturing both virtual reality and standard video and picture. Along with the new camera, a pilot program is being conducted for Fusion, allowing professional content creators to gain early access to the camera and provide feedback. Fusion is scheduled to be on the market by the end of 2017 and will likely be available in the holiday season to boost sales.

Liquidity

Exiting the quarter, the company had cash and cash equivalents of $149.8 million, down significantly from $192.1 million as on Dec 31, 2016.

Guidance

In light of a relatively strong quarter, the company gave a decent guidance for third-quarter 2017. It projects revenues of about $300 million (+/- 10 million) for the quarter. The company expects gross margin to be 37% (+/- 1%).

For full-year 2017, GoPro plans to limit its non-GAAP operating expenses in 2017 to $495 million, in an attempt to try to return to full-year profitability. This is comparable to a 2016 figure of about $709 million.

GoPro should be able to attain these massive cost reductions, in light of its recent job cuts and business restructuring, which did away with many high-cost operations, including its entertainment division.

It is likely that GoPro’s sales will gradually improve, as it ramps production and Karma gains traction in international markets. This will supplement the company’s cost-reduction initiatives and enable it to achieve sustained, profitable growth.

Our Take

2016 was a brutal year for GoPro, with multiple operational hurdles, including untimely launches, production delays and missed deadlines, which forced the company to eliminate hundreds of jobs and abandon an entertainment division. The company has also been facing pressure to establish a more mainstream market for its cameras. However, tough competition from smartphone brands such as Apple Inc. (AAPL - Free Report) and Samsung Electronics Corp. has been making it difficult for the company.

In the first half of 2017, the company has taken stringent measures to achieve the earlier growth and go beyond its trademark action cameras.

Now it seems that GoPro is progressing well on its turnaround story. Near-term revenues are stabilizing, costs are coming out of the system and the company anticipates EBITDA to be a positive for full-year 2017. In the reported quarter, heavy cost-cutting helped expand margins significantly, without hurting sales, and the guidance for the third quarter looks encouraging. GoPro is bounding back toward profitability, as the demand for its products builds momentum. GoPro said it’s on track to launch HERO6 later this year.

We believe this Zacks Rank #3 (Hold) stock is on the right track to build a market for its new products and return to sustainable growth.

Stocks to Consider

A couple of better-ranked stocks in the broader Consumer Discretionary sector are Sony Corporation (SNE - Free Report) and Nintendo Co. (NTDOY - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sony registered a positive average surprise of 69.9% over the four trailing quarters, driven by three strong earnings beats.

Nintendo generated an average positive earnings surprise of 190%, driven by three massive beats in the trailing four quarters.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation. See Them Free>>




In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Sony Corp Ord (SNE) - free report >>

Apple Inc. (AAPL) - free report >>

GoPro, Inc. (GPRO) - free report >>

Nintendo Co. (NTDOY) - free report >>


More from Zacks Analyst Blog

You May Like