By Thomas J. Ryan

<span style="color: #b3b3b3;">Shares of GoPro were trading down about 9 percent Thursday in mid-day trading after company officials said holiday sales came in lower than expected. The resultant need to clear inventories will cause a steep decline in sales in the first quarter.

In the quarter ended December 31, sales jumped 40.0 percent to $528.3 million, short of analysts’ average estimate of $565.9 million. GoPro launched two new cameras including a ramped-up version of its HERO line in October. Excluding aerial business, revenue would have increased 7 percent year-over-year.

Net income rose to $95.8 million, or 65 cents per share, from $31.7 million, or 22 cents, a year earlier. On a non-GAAP basis, earnings rose 142 percent to $102.5 million, or 70 cents a share, from $42.4 million, or 30 cents, a year ago. Results missed analysts’ average estimate of 79 cents.

On a conference call with analysts, Nicholas Woodman, CEO and chairman, said that in Q4, GoPro saw “phenomenal sell-through” of both HERO8 Black and Max during the Black Friday, Cyber Monday period. However, in December, sell-through returned to levels still slightly up from the HERO7 line in the prior year, but below the company’s growth expectations.

He noted that despite the shortfall, the quarter marked the third-largest quarter of sales in GoPro’s history and its second-most profitable quarter ever. He added, “Importantly, consumers continue to gravitate toward our highest-end products, which is having a positive impact on ASPs. A very positive trend is that in 2019, 90 percent of GoPro’s revenue came from the $300 and above price band, up from 62 percent in the prior year.”

Woodman also noted progress for the full-year as the company was able to return to growth and show improved underlying profitability.

<span style="color: #b3b3b3;">For the full-year, sales ran ahead 4.0 percent to $1.19 billion. The net loss in the year was narrowed to $14.6 million, or 10 cents a share, from $109.0 million, or 78 cents, a year ago. On a proforma basis, net earnings came to $35.3 million, or 24 cents, against a loss of $31.9 million, or 23 cents, a year ago.  Adjusted EBITDA increased more than 3 times year-over-year to $72 million.

Contributors to improving profitability in the year included the move of U.S. bound camera production to Guadalajara, Mexico from China; material growth of consumer direct sales at GoPro.com and the growth of its high-margin Plus subscription service. ASPs and gross margin also improved due to strong demand for high priced cameras.

Other highlights of the period include:

  • In the U.S., HERO8 Black was the No. 1 selling camera in all of digital imaging by unit volume in Q4 2019, according to the NPD Group.
  • In the U.S., GoPro captured 93 percent dollar share of the action camera category in Q4 2019, according to the NPD Group.
  • In Q4 2019, MAX captured 54 percent and 66 percent unit and dollar share, respectively, of the spherical camera market in the U.S., according to NPD Group. Collectively, MAX and Fusion captured 62 percent unit and 72 percent dollar share of the spherical camera market in the U.S. in Q4 2019, up from 14 percent and 38 percent respectively, year-over-year, according to NPD Group.
  • GoPro’s Plus subscription service surpassed 334,000 active paying subscribers as of January 31, 2020, up 10 percent since Q3 2019 Earnings Release dated November 7, 2019, and up 69 percent year-over-year.
  • In Europe, during Q4 2019, GoPro had four of the top five cameras in the action camera category and in the $200 and above price band of the action camera category, GoPro held 83 percent dollar share and 82 percent market share in units, according to GfK.
  • In China, GoPro sell-through increased by 42 percent and 21 percent, by units and dollars, respectively in Q4 2019, year-over-year, according to GfK.
  • Organic viewership of GoPro content across all channels achieved an all-time high in 2019, with more than 2 million organic views per day across all channels in 2019, 737 million organic non-paid views in total, a 29 percent increase year-over-year.
  • GoPro’s Million Dollar Challenge Campaign generated a record 42,000 customer content submissions, a 68 percent increase year-over-year, and in the first week, the highlight reel garnered more than five times the views, year-over-year.
  • Social followers across all channels increased by 4.2 million in 2019, up 29 percent year-over-year.
  • In Q4 2019, usage of the GoPro App’s automatic editing tools grew 400 percent year-over-year

Said Woodman, “We enter 2020 with the most exciting product lineup in our history, serving new customer segments like vloggers and ultra-creatives with increased performance and versatility.”

He said the 2020 focus would be on maximizing the profitability of its core hardware business with an emphasis on higher-end products, scaling its Plus subscription business to 600,000 to 700,000 paid subscribers by year-end, releasing a new GoPro App experience, keeping tight controls of operating expenses, and further expanding direct-to-consumer.

<span style="color: #b3b3b3;">Looking ahead, the company expects a steep decline in first-quarter revenues as high inventories in the marketplace are cleared. For the quarter, guidance calls for revenue in the range of $140 million to $160 million, a net loss of $40 million to $50 million and cash to be essentially flat sequentially. In the year-ago first quarter, sales were $243 million, the GAAP net loss was $24 million and the non-GAAP net loss was $10 million.

GoPro expects to be profitable for each of the following three quarters with expanded gross margin and EPS for the year.

For the full year, guidance calls for approximately flat revenue year-over-year. Camera ASPs are projected to increase between 6 percent to 10 percent year-over-year, due to sales of higher-priced cameras, as well as accessories and subscription revenue growth. But camera unit sales are expected to be 6 percent to 10 percent lower year-over-year, given channel inventory levels exiting 2019.

Gross margin for the year is expected to land in the range of 38 percent to 39 percent, non-GAAP earnings to range between 40 to 50 cents per share, and GAAP earnings to range between 1 to 11 cents 11 per share. EBITDA to projected to increase between $95 million to $110 million, representing approximately 50 percent growth at the mid-point year-over-year, and cash to increase year-over-year by $80 million to $100 million.

Photo courtesy GoPro Corporate