After its stock hit a new low yesterday, GoPro Inc (NASDAQ: GPRO) issued an update to investors that eased a lot of fears about its future. Management declared that revenue will be better this year, and announced more staff cuts, lowering operating costs.
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Neither factor will alone change GoPro's future, but the company appears to be coming to grips with what it needs to do to turn around operations. And every update should be seen in a context of whether it achieves the goal of, or indicates progress toward, the company making great products people want and lowering costs so GoPro can become profitable again.
GoPro's Hero lineup. Image source: GoPro.
Revenue is strong, for now
There are two factors that investors need to watch closely at GoPro in 2017: revenue and operating costs. On the revenue side, there was a little good news in the guidance update. Management said revenue in the first quarter will be at the high end of the guidance range of $190 million to $210 million.
Stagnant, and even falling, revenue has been a problem for GoPro the last two years, so even a small indication that demand for its products is strong is a good sign. What this doesn't tell us is how much revenue the company will generate in the all-important holiday season. So, it may indicate that demand is good, but we can't read too much into the top-line recovery yet.
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Costs are finally coming under control
The other important factor to watch is operating expenses, and these are within GoPro's control. Management announced a 270-person reduction in headcount and said adjusted operating expenses will be below $495 million in 2017. This will make it easier to attain profitability, something GoPro says it will do on a non-GAAP basis this year.
Also important is that CEO Nick Woodman said the cuts "will not hinder innovation at GoPro." Cuts last year were focused on the upper levels of management, and these cuts appear to be further down the chain in GoPro's organizational structure. After years of growing, it appears that it was time for GoPro to slim down the organization and focus more on what was important to making the business successful. The indication is that management views these cuts as proactive for GoPro, rather than reactive to any bad news coming from product sales.
Is this where GoPro's stock turns around?
The last two years have been painful for GoPro shareholders, and the changes management has needed to make have been slower than necessary. But improvements to products, streamlining of the product lineup, and better inventory management appear to have taken hold in 2016, as the company learned lessons from 2015's disastrous holiday season. Now there needs to be more focus on what products will be developed for the future, and on lowering operating costs so the business has a low enough cost base to eventually return to profitability and even growth.
This guidance update indicates that GoPro's management is taking steps in the right direction on the cost and focus fronts. And if revenue holds up, there's a fighting chance the company can break even in 2017. It's still unknown whether GoPro can grow sales in cameras, drones, and any new products enough to make a significant improvement beyond this year, but at least the foundation it's building on is more focused than it's been in the past. For investors, that increases chances for a recovery in the future.
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Travis Hoium owns shares of GoPro. 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. The Motley Fool has a disclosure policy.