Why GoPro, Inc. Stock Plunged, Then Recovered Today

By Markets Fool.com

Image source: GoPro.

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What happened

Shares of GoPro, Inc. (NASDAQ: GPRO) plunged as much as 17% in Friday's early trading, but quickly recovered to trade up 1% as of 12:30 p.m. EDT after the action-camera and drone specialist announced weaker-than-expected third-quarter 2016 results.

So what

Quarterly revenue fell 39.9% year over year, to $240.6 million. Based on generally accepted accounting principles (GAAP), that translated to a net loss of $104.1 million, or $0.74 per share. On an adjusted basis, which excludes items like stock-based compensation and one-time acquisition expenses, GoPro's net loss was $84.3 million, or $0.60 per share.

GoPro didn't provide formal quarterly financial guidance with its last report three months ago. But for perspective -- and while we typically don't pay close attention to Wall Street's near-term expectations -- analysts, on average, were looking for significantly higher third-quarter revenue of $314.1 million, and a narrower adjusted net loss of $0.35 per share.

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"These are the best products we've ever made and consumer demand is strong," stated GoPro founder and CEO, Nick Woodman, referring the company's recent launch of two new Hero 5 camera models, its new Karma drone, promising new editing apps, and a cloud-based subscription service called GoPro Plus. "GoProis now a seamless storytelling experience and we're very happy with customer reception so far."

Now what

Woodman elaborated during the subsequent conference call: "As good as these products are and as impactful as we expect them to be, unfortunately we experienced production issues that resulted in lower-than-expected launch volumes for Hero 5 Black and Karma. While our teams worked tirelessly to solve the problems, we expect the situation to have a negative impact on results for the second half of the year."

As a result, GoPro was not only unable to fully restock its sales channels in Q3, but also expects it will be challenging to meet demand in the crucial holiday quarter.

Even so, for the current quarter GoPro expects revenue of $600 million to $650 million, which should result in GAAP earnings per diluted share in the range of $0.10 to $0.20, and adjusted earnings per diluted share of $0.25 to $0.35. Both ranges were below analysts' expectations for fourth-quarter revenue of $666.1 million, and adjusted earnings of $0.44 per share.

"Looking forward to 2017," Woodman stated, "we expect to return to profitability, driven by the strength of our new products, double-digit revenue growth and annual operating expenses of approximately$650 million."

In the end, there's no denying this quarter was disappointing. But even assuming GoPro can't keep up with demand in the lucrative holiday quarter, it's an enviable problem to have for a company whose previous aging product lines have caused investors to endure painful year-over-year declines in both revenue and earnings over the past year. With brighter days expected ahead, it's unsurprising to see opportunistic investors taking advantage of GoPro's brief plunge this morning.

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Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends GoPro. The Motley Fool has the following options: short January 2019 $12 calls on GoPro and long January 2019 $12 puts on GoPro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.