Given the recent headlines, Wednesday’s post-close earnings report from action camera maker GoPro (NASDAQ:GPRO) should be a good one. CEO Nick Woodman commented in mid-January that for the first time in a long time, the holiday quarter wasn’t unexpectedly tripped up. Plus, its Hero7 Black camera launched in early October has received rave reviews.
On the flipside, anything less than a solid earnings or revenue beat could lead to another round of devastation for owners of GPRO stock.
This is a company that has largely failed to live up to the very hype it helped create. One more letdown could easily be a deathblow to GoPro as we know and love it today.
GoPro Earnings Outlook
The saga is certainly a dramatic one. From a 2014 IPO price of $24 to a peak of more than $98 a few months later to a record low of $4 in December, GPRO stock has burned nearly everyone who dared touch it for any meaningful length of time.
As it turns out, most everyone recognizes the company makes the world’s best action cameras. Not everybody wants to own an action camera though.
Much has been right-sized over the course of the past five years, not the least of which has been investor expectations. But, the company itself has also dialed back its spending on expansion, finally recognizing where its demand limits are.
That balance could be close to paying off.
For the first time in a long time, analysts are calling for year-over-year sales growth. For its fourth quarter ending in December, the pros are modeling a top line of $368.9 million, up 10.2% from Q4-2017’s tally.
Better still, smarter expense control and more efficient use of cash should drive a sizeable swing to a profit. After losing 30 cents per share of GPRO stock during the final quarter of 2017, analysts are calling for a per-share profit of 25 cents. That would be the second-best quarter ever for the beleaguered company. The best-ever was the Q4-2014 operating profit of 98 cents per share, when action cameras were new and exciting.
Possible, But Somehow Unlikely
The Hero7 is undeniably the best action camera GoPro or any of its rivals have ever made, but with a similar starting price tag — $399 — earlier iterations have sported. It’s also likely that buyers of the company’s earliest action cameras are finally ready for an upgrade, if not an outright replacement.
Woodman’s comment “The boogeyman a lot of people were worried would blow up our fourth quarter didn’t happen” made last month also served as a sigh of relief.
And yet, it’s entirely possible ran into a Q4 headwind that wasn’t readily seen.
A month ago, Investorplace’s Ian Bezek opined “…software builds empires, whereas hardware loses traction over time. Software generates huge profit margins, and tends to garner recurring revenue for many years to come. Hardware companies, on the other hand, rarely stay popular for more than a couple years.”
If he’s right (and he is), GoPro’s software ambitions aren’t panning out quite as hoped.
It’s anecdotal, but telling all the same. As of December, the GoPro Plus platform (a subscription-based offering that lets GoPro owners store and edit movies and pictures for only $4.99 per month) only had 185,000 customers on board. At the end of January, GoPro sweetened the pot by adding unlimited cloud storage of those digital video and images. The effectiveness of that revamped offer has yet to be measured, but the interpretation is clear … the company isn’t drawing much of a crowd on the software front either.
Bolstering the concern that Q4 was tougher than it may have seemed on the surface is contrast with plans suggested earlier in the year.
In May of 2018, Woodman noted “It’s not going to be an overly promotional year for GoPro.” In December, prices of its cameras fell between $50 and $100, depending on the version, mirroring some of the company’s biggest previous price-breaks. In January, Woodman defended the move by saying “A few million more in promotions is totally in line with what you’d expect a leading consumer brand to do.”
The messages are a bit mixed, suggesting something unexpectedly changed along the way.
Looking Ahead for GPRO Stock
Even if the fourth-quarter numbers are as strong as predicted, some GPRO stock owners fear the only viable “out” from here is an outright acquisition of the company, primarily for its brand.
Thus far, Woodman hasn’t been keen on the idea, only suggesting he’s “open to a partnership.” What such a partnership might look like remains unclear.
If the company’s fourth-quarter numbers are anything less than expected though — or if investors are given good reason to doubt this year’s sales projection of $1.2 billion and earnings forecast of 26 cents per share of GPRO stock are out of reach — pressure for some sort of deal could easily swell.
Apple (NASDAQ:AAPL) has been named as a possible suitor. So has rival Xiaomi (OTCMKTS:XIACF). Action cameras are marketable, but making them viable and reasonably, consistently profitable likely requires them to be part of a much bigger ecosystem. Apple can offer that, and Xiaomi is at least in a position where it can and would cultivate one.
Investors may want to listen for those kinds of clues during and after the earnings call, if the numbers aren’t great.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.