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GoPro (GPRO) Q3 Earnings & Revenues Beat Estimates, Up Y/Y

GoPro, Inc.’s GPRO reported third-quarter fiscal 2017 adjusted earnings of 15 cents per share, comfortably beating the Zacks Consensus Estimate which was at breakeven level. Before first-quarter 2017, the company lost money in six of the last seven quarters. Notably, the company’s substantial cost-cutting initiatives have proved conducive tobottom-line performance.

On a GAAP basis, the company reported earnings of 10 cents for the quarter, compared witha loss of 74 cents in the prior-year period. 

The company posted better-than-expected revenue numbers for the quarter and also reduced operating expenses significantly.

Inside the Headlines

GoPro surprised investors with its sales figures, as its quarterly revenues grew 37.1% from the prior-year quarter’s tally to $329.8 million. This marked the company’s second consecutive quarter of revenue growth. The top line also beat the Zacks Consensus Estimate of $314.3 million.

Revenue growth was driven by robust sales of the latest Hero5 cameras and launch of its premium-priced HERO6 Black with global on-shelf availability.

GoPro, Inc. Price, Consensus and EPS Surprise

GoPro, Inc. Price, Consensus and EPS Surprise | GoPro, Inc. Quote

HERO5 Black was the best-selling digital imaging device in units and dollars in the United States for four consecutive quarters. More than half of GoPro's revenuescame from outside the United States. GoPro also had a "strong start" for its Karma drone.

For the quarter, R&D expenses were down 42.7% year over year. Additionally, sales and marketing expenses plunged 49.1% year over year. Third-quarter operating expenses came in at $122.5 million, down 42.4% year over year.

Non-GAAP gross margins contracted 50 basis pointsyear over year to 40.1%. Non-GAAP operating income came in at $24 million, down 127.2% from $88.6 million generated last year.

Restructuring

GoPro has been aggressively cutting costs in recent times through a series of layoffs. Last year, the company conducted two rounds of layoffs, cutting 7% and 15% of its workforce in January and November, respectively. GoPro also shuttered its entertainment and media business as part of restructuring.

The companyalso shifted most of software development to a more economical location like Romania, while customer support and administrative services have been moved to the Philippines. The company has streamlined supply chain and also made changes to its product packaging and shipping.

GoPro believes that restructuring efforts will help it bring down full-year GAAP operating expenses below $585 million and non-GAAP operating expenses below $495 million. The company also assured that it would bring down operating expenses by over $200 million and return to EBITDA profitability in 2017.

Moreover, the companyaffirmed that these cost-cutting efforts will not interfere with its pipeline of hardware and software product launches.

Notable Developments

In October, GoPro announced its intention to increasepresence in Bucharest, Romania. Since expanding presence of engineering team to Bucharest, the company has witnessedimmense contribution fromits Bucharest team in release of HERO6 Black, Fusion, and QuikStories. Going forward, the company will continue to focus on development of GoPro’s web and e-commerce platforms.

Liquidity

Exiting the quarter, the company had cash and cash equivalents of $164.6 million, down significantly from $192.1 million as on Dec 31, 2016.

Guidance

In light of a comparatively strong quarter, the company gave a decent guidance for fourth-quarter 2017. It projects revenues of about $470 million (+/- 10 million) for the quarter.

For full-year 2017, GoPro plans to limit operating expenses in 2017 to $490 million, in an attempt to try to return to full-year profitability next year.

GoPro should be able to attain these massive cost reductions, in light of its recent job cuts and business restructuring, which did away with many high-cost operations, including its entertainment division.

Our Take

GoPro has been aiming towards transforming itself from the ‘camera maker’ to ‘content maker’, and has taken significant steps to diversify into higher-margin businesses including video editing and virtual reality. The company is developing various types of software solutions and hardware to curtail the complexity of managing, editing and sharing contents on different media platforms.

The company has made significant improvements to its editing software, on the back of its recent acquisition of two of the most popular mobile editing apps, Replay (which has been rebranded as Quik) and Splice, which are experiencing robust adoption. We believe that these efforts will pay off in the long term, and go a long way toward opening GoPro to a wider audience and expanding the user base.

GoPro currently sports a Zacks Rank #1 (Strong Buy).

Other Stocks to Consider

Some other top-ranked stocks worth considering in the same space include Imax Corporation IMAX, Gildan Activewear, Inc. GIL and Advanced Micro Devices, Inc. AMD. While Imax sports a Zacks Rank #1 (Strong Buy), Gildan Activewear and Advanced Micro Devices carryZacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Imax has a decent earnings surprise history, surpassing estimates twice in the trailing four quarters with an average beat of 41.3%.

Gildan Activewear has an impressive earnings surprise history, exceeding estimates thrice in the trailing four quarters with an average beat of 5.5%.

Advanced Micro Devices has an impressive earnings surprise history, exceeding estimates in the trailing four quarters with an average beat of 31.7%.

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