Back to top
Read MoreHide Full Article

Action camera maker GoPro, Inc. (GPRO - Free Report) is facing trouble from all sides. The company is throwing in the towel on its drone business and slashing 20% of its workforce after a sub-standard holiday quarter. GoPro’s stock plunged as much as 32% yesterday (the biggest drop and lowest price level since it went public) after it released a profit warning ahead of fourth-quarter 2017 earnings results.

In fact, GoPro has reportedly hired banker JP Morgan Chase to explore a sale. The company’s shares have lost 27.3% over the past year, in stark contrast to the industry’s gain of 58.3%.

Bleak Preliminary Q4 Results

GoPro lowered its projected revenues for the critical holiday season to about $340 million, marking it as its worst holiday quarter since it went public. This marks a significant slump from an already disappointing previous sales projection of $470 million. Also, it represents a 37% year-over-year sales plunge in the key holiday quarter, and is miles behind the current Zacks Consensus Estimate of $472 million. The company stated that its revenues took a hit of about $80 million due to discounting for its Karma drones, as well as the Hero line of cameras, during the holiday quarter.

Late in 2017, GoPro slashed prices for its Karma drone, the Hero 5 Black and Hero 5 Session cameras. It also cut the price of its newest camera, HERO 6 Black, to $399 from $499. Soft demand and price reductions affected the top line, despite strong marketing support for key products.

Bad Karma

Not a long while ago, GoPro had hoped Karma would help turn its fortunes around and stoke growth for the beleaguered action camera company. Karma has been a roller-coaster ride for the company, punctuated mostly by lows rather than highs, as problems like production delays to a recall of 2,500 units due to a battery issue plagued the drone from the start. GoPro is now shuttering its drone business, citing stiff competition and regulatory hassles.

Karma was, no doubt, facing mounting margin challenges in a tremendously competitive aerial market, which was dominated by the likes of DJI Technology and AeroVironment. A hostile regulatory environment in Europe and the United States further reduced Karma’s total addressable market and made its future untenable.

Restructuring Measures

Nevertheless, founder and CEO Nicholas Woodman is committed to turning the company’s business around in 2018, and outlined some further restructuring measures to achieve the same. The company is letting go of around 250 of its staff and will reduce Woodman’s salary to $1, in order to curtail operating expenses further.

This would again mark the second double-digit percentage workforce reduction over the past year for the company. Last March, GoPro cut 270 jobs, which followed about 300 job cuts in 2016. After the latest round, GoPro will end up with less than 1,000 employees, down from 1,254.

The current job cuts and restructuring will result in an estimated charge of $23-$33 million, most of which will be recognized in the first quarter of 2018. GoPro will shed more light on the same and its 2018 outlook in its fourth-quarter 2017 earnings report, which it will release in early February.

Amid its multiple operational issues, production delays and bungled-up product roll outs, GoPro has already lost significant ground to competitors like Sony Corporation (SNE - Free Report) , Garmin Ltd. (GRMN - Free Report) and Nikon Corporation (NINOY - Free Report) . Now with this major fourth-quarter revenue shortfall, the company’s full-year growth is in serious jeopardy. In addition, GAAP losses might result in additional cash burn, further weakening the company's balance sheet.

For now, it appears that investors don’t believe GoPro’s initiatives can outweigh soft demand for its only real products, particularly as it exits a potential major revenue-generating business.

GoPro currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks’ Best Private Investment Ideas

While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public.

Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors.

Click here for Zacks' private trades >>




In-Depth Zacks Research for the Tickers Above


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


Nikon Corp. (NINOY) - free report >>

Sony Corp Ord (SNE) - free report >>

Garmin Ltd. (GRMN) - free report >>

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


More from Zacks Analyst Blog

You May Like