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GoPro (GPRO) Sinks, Reports Massive Q4 Loss as Sales Tank

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GoPro, Inc.’s (GPRO - Free Report) shares were still reeling from the shock of its dismal preliminary results, when the company reported weaker-than-expected fourth-quarter 2017 earnings that hurt the stock even more.

The company slipped back into the red as it reported an adjusted net loss of 30 cents per share for the fourth quarter, in stark contrast to earnings of 29 cents per share posted in the year-ago quarter. The bottom line also missed the Zacks Consensus Estimate of a loss of 10 cents per share by a wide margin. The company has lost money in seven of the last 10 quarters.

Not surprisingly, the company’s shares were trading 6.6% lower in pre-market trading at the time of writing.

For the full year, the company lost $182.8 million on a GAAP basis, which was, nonetheless, better than the 2016 net-loss figure of $419 million.

Inside the Headlines

GoPro’s revenues for the all-important holiday quarter missed the mark as well, as sales plunged 38.1% year over year to $334.8 million, marking it as its worst holiday season since the company went public. The tally missed the company’s preliminary estimate of $340 million, which was already well short of its original estimates. The Zacks Consensus Estimate for the quarter was pegged much higher at $384 million before the company released the preliminary figures.

The top line took an $80-million hit due to discounting of the Karma drones and Hero cameras during the holiday season.

For 2017, revenues came in at $1.18 billion, underlining a marginal decline compared to 2016.

The weakness in revenues was broad-based across geographies. The company witnessed a 35.9% decline in the Americas to $175.7 million, while Europe plummeted 46.7% to $89.6 million. Also, sales in the Asia-Pacific region contracted 29.5% to $69.5 million.

In addition, adjusted gross margin came in at 24.8%, down significantly from 39.5% in the year-ago period, and below the expected range of 25-27%. Non-GAAP operating loss came in at $37.4 million, considerably down from operating income of $31.6 million generated in the comparable quarter last year.

Further, camera units shipped tanked 40.4% year over year to 1.361 million.

Even so, there was a silver lining in the company’s bleak quarterly earnings release. GoPro noted that it holds more than 80% of the action-camera market in the United States, by unit volume. The camera manufacturer also saw its unit sales rise 28% and 96% year over year in China and Japan, respectively.

For the reported quarter, R&D expenses continued the downward trend and slumped 43.4% year over year. Additionally, sales and marketing expenses dropped 42% year over year. Fourth-quarter operating expenses came in at $138.1 million, down 42.1% year over year.

Restructuring Measures

GoPro has been aggressively cutting costs in recent times through a series of layoffs. 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 the restructuring last year.

Just last month, GoPro announced that it has decided to abandon its drone business, citing intense competition and a hostile regulatory environment. The company is also slashing 20% of its workforce after a sub-standard holiday quarter. Specifically, GoPro is letting go of around 250 of its staff and will reduce CEO Woodman’s salary to $1, in order to curtail operating expenses further.

The current job cuts and restructuring will result in an estimated charge of $23-$33 million, most of which will be recognized in first-quarter 2018.

Liquidity

Exiting the fourth quarter, the company had cash and cash equivalents of $202.5 million, up from $192.1 million as on Dec 31, 2016.

Guidance

In light of such bleak results, the company refrained from providing any guidance for 2018.

Our Take

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 beginning. GoPro is now shuttering its drone business, citing stiff competition and regulatory hassles.

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) .

Late in 2017, GoPro slashed prices for the Hero 5 Black and Hero 5 Session cameras. It also cut the price of its latest camera, HERO 6 Black, to $399 from $499. The constrained demand and price cuts will impact the top line in the coming quarters as well. For now, it appears that investors don’t believe GoPro’s initiatives can outweigh the weak demand for its only real products, particularly as it exits a potential major revenue-generating business.

In fact, GoPro has reportedly hired banker JP Morgan Chase to advise on a potential sale.

Not surprisingly, GoPro currently has a Zacks Rank #5 (Strong Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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