An Intriguing Transaction: GoPro Wants to Sell Some Debt.

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GoPro’s press release of yesterday had the following title: “GoPro to Offer $150 Million of Convertible Senior Notes due 2022.”  Well, okay, they’ve run through a lot of cash lately.  That they might want to raise some makes sense.  We don’t yet know anything about the terms.  “The interest rate, conversion rate, offering price and other terms are to be determined upon pricing of the notes,” the press release says.

Here’s the link to the press release.  I’m hoping one of you who has more experience with this kind of deal might call me or post a comment on my web site explaining it.

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GoPro’s Year and Quarter: Doing the Right Things, But……..

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Let’s just jump right to a comment CEO Nick Woodman made during the conference call.

“I would say that we are more focused on revenue and margin and less focused on volume on a unit basis.”

That sounds to me like GoPro is more interested in the higher end of the market.  And they should be. But if that’s their focus (I happen to think it should be, but dare I call it a niche?) is there enough revenue growth to satisfy the requirements of being a public company?

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GoPro Announces a Restructuring

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As part of a press release entitled “Solid Holiday Demand in the U.S. for GoPro HERO5,” GoPro announced, further down the press release, that its board of directors had “…approved a restructuring of the Company’s business.  The restructuring includes a global reduction-in-force, the closure of the Company’s entertainment division and the consolidation of certain leased office facilities.”

“The  Company  estimates  that  it  will  incur  total  aggregate  charges  of  approximately  $24  million  to  $33  million  for  the  restructuring,  including approximately $13 million to $18 million of cash expenditures as a result of the reduction in force, substantially all of which are severance and related costs, and approximately $11 million to $15 million of non-cash expenditures, consisting primarily of stock-based compensation expense and accelerated depreciation associated with office consolidations. The Company expects to recognize most of the restructuring charges in the fourth quarter of 2016.”

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The Same Old Competitive Conundrum: GoPro’s September 30 Quarter

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I like GoPro’s strategy.  Or at least, I don’t know what other strategy I could choose to pursue as a public company in their space.  Here’s how they describe its evolution in the 10-Q for September 30.  “What began as an idea to help athletes document themselves engaged in sport, GoPro has become an end-to-end storytelling solution that helps the world share itself through immersive and engaging content.”  I’ll quote President Anthony Bates at some length, because it’s important to understand their concept.

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GoPro’s Quarter: Tactics VS Strategy

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Just what kind of company is GoPro exactly?  Well, obviously, in spite of its recent difficulties, it’s a huge success.  How else can you characterize a founder and a company that recognized and created a new market, took the lead in it and built a billion-dollar business?  But having accomplished that, it now has to wrestle with being a consumer electronics/device company or an active outdoor, content/media company.

There’s really not much wrestling to do.  As I’ve been pointing out since they went public, they are in trouble if they can’t evolve from the first towards the second.  Right now, their capture devices (cameras) and the associated accessories generate all their revenue.  I’ve never seen a mention of any proprietary technology they own, and certainly their resources are not as great as some of their competitors.

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GoPro’s Quarterly Results: They Have to Create Other Revenue Sources. How?

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GoPro released the 10-Q for their quarter ended March 31st last Thursday.  The company’s net income dropped from a profit of $16.8 million in last year’s quarter to a loss of $107.5 million in this year’s.  The balance sheet remains very solid, though not quite as solid as a year ago.

We’ll have our usual fun with the numbers, but let’s start with a discussion of the market and strategic situation GoPro finds itself in.  That’s ultimately what will determine the numbers after all.

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GoPro Gives Us Some Preliminary Financial Results

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On January 13th, GoPro filed an 8-K with the SEC. In the press release it included, they announced expected fourth quarter revenue of $435 million and $1.6 billion for the year and a projected gross margin of 34.5% to 35.5%. The annual number represents 16% year over year revenue growth. By way of comparison, in the quarter that ended December 31, 2014, GoPro reported revenues of $633.9 million and had a gross profit margin of 47.9%.

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The Challenge Hasn’t Changed: GoPro’s September 30 Quarter

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On the face of it, GoPro had a pretty good quarter and, as usual, we’ll take a look at the numbers. The stock closed at $30.21 on October 28th. They released their earnings after the market closed. The next day, the stock closed at $25.62, down 15.2% on by far the biggest trading volume since July of 2014. What’s everybody worried about?

CEO Nick Woodman notes in the conference call that, “…this quarter marks the first time as a publically traded company that we delivered results below the expectations that we outlined in our guidance.”

That never makes Wall Street happy, but I hate knee jerk reactions to quarterly results. Still, the stock’s been in a downtrend since October 2014. What are people seeing from a longer term, strategic perspective?

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GoPro’s Quarter. What Kind of Company is This Anyway?

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Isn’t it interesting that I’m writing about GoPro at all? In 1995 I wrote my first column for Transworld Snowboarding Business and now, somehow, I’m writing about a consumer electronics company.

Relax GoPro people. I know you aren’t really a consumer electronics company. Or at least, you don’t want to be even though right now almost all your revenues come from your cameras. I’d go so far as to say that if you end up as a consumer electronics company, your competitive position will be uncertain bordering on unsustainable no matter how much you spend on R&D.

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