GoPro (GPRO) Q2 Loss Narrower Than Expected, View Positive

GoPro, Inc.’s (NASDAQ:GPRO) 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

Zacks Investment Research

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Written By: Zacks Investment Research