uploads/2017/03/6-18.png

Inside GoPro’s Strategy to Improve Financial Metrics

By

Updated

Focus on profitability

In fiscal 2015, GoPro (GPRO) had $470 million in cash, which fell to $220 million at the end of fiscal 2016. GoPro used $120 million to fund an acquisition and use of cash from operations was ~$100 million. In fiscal 2017, GoPro wants to reduce its operating expenses to below $600 million, as compared to $708 million in fiscal 2016.

GoPro has also stated that it wants to be profitable and is planning to reduce its capital expenditure to below $600 million. GoPro had initially invested in several areas such as entertainment, drones, software, cameras, and accessories. GoPro’s team size also grew from 800 to 1,700 employees. GoPro scaled up quickly and introduced numerous products over the past two years. The firm can now focus on improving operational efficiency and returning to profitability.

In 4Q16, GoPro reported net income of $42.4 million, after reporting net losses in the four consecutive quarters prior to 4Q16.

Article continues below advertisement

Reduction in costs

In November 2016, GoPro removed one-third of its roles at the level of vice president and above. GoPro noted that it intends to shift resources to low-cost locations such as China and the Philippines. In February 2017, the company opened an office in Bucharest, Hungary, and replaced its software contractors with regional domestic teams. GoPro has closed several California facilities and offices in San Francisco, Los Angeles, and San Mateo over the past few months.

On November 30, 2016, GoPro announced that it would cut its workforce 15%, lay off 200 full-time employees, and cut back the use of contractors. The company also stated that it planned to eliminate its Entertainment segment. The layoffs, the closure of its Entertainment segment, and other restructuring measures are expected to eliminate ~$650 million from GoPro’s adjusted operating expenses in 2017.

Notably, in 4Q16, GoPro’s gross margin fell from 40.6% to 39.5% in 3Q16, primarily driven by channel mix. Its gross margin in 4Q15 was 29.6% due to a $57 million impact of charges related to entry-level products.

Continue to the next and final part of the series for a closer look at GoPro’s analyst recommendations.

Advertisement

More From Market Realist