GoPro, Inc. has reportedly hired JP Morgan to consider strategic options including a company sale, several finanancial news outlets reported.
“We’ve always been clear that we are open to any opportunity that will help us scale our mission. JP Morgan is our banker, but there is no active engagement to sell,” GoPro said in emailed comments to Reuters.
“It is our responsibility to scale the business, so if the right opportunity presented itself, it’s something we would consider,” it added.
The company also announced it is reducing its workforce again and will go from 1,254 employees as of September 30, 2017 to fewer than 1,000 employees worldwide. In addition, GoPro will exit the drone market.
Much of the news came from GoPro’s preliminary financial results for the fourth quarter ended December 31, a key quarter for the company. Pricing for several of the company’s products did not hold up during the holiday season.
Fourth quarter revenue includes a negative impact of approximately $80 million for price protection on HERO6 Black, HERO5 Black and HERO5 Session cameras, as well as the Karma drone. GoPro expects revenue to be approximately $340 million for the fourth quarter of 2017.
“As we noted in our November earnings call, at the start of the holiday quarter we saw soft demand for our HERO5 Black camera,” said GoPro founder and CEO Nicholas Woodman.
“Despite significant marketing support, we found consumers were reluctant to purchase HERO5 Black at the same price it launched at one year earlier. Our December 10 holiday price reduction provided a sharp increase in sell-through.”
Globally, HERO5 Black sell-through more than doubled in the two weeks following the December 10 price reduction, while HERO5 Session sell-through roughly tripled.
Sales of the newly introduced flagship HERO6 Black camera performed as expected during the fourth quarter. On January 7, GoPro lowered the price of its premium model, HERO6 Black from $499 to $399 to align with its good, better, best product strategy.
GoPro expects GAAP gross margin for the fourth quarter of 2017 to be between 24% and 26%. GoPro expects GAAP operating expenses to be between $136 million and $140 million for the fourth quarter of 2017 and non-GAAP operating expenses to be between $118 million and $122 million for the same period.
GoPro ended the fourth quarter with cash and cash equivalents of $247 million, up $50 million over the third quarter of 2017.
Initial uptake of GoPro’s newly launched spherical camera, Fusion, was better than expected during the quarter. “GoPro is committed to turning our business around in 2018,” said Nicholas Woodman. “We entered the new year with strong sell-through and are excited with our hardware and software roadmap. We expect that going forward, our roadmap coupled with a lower operating expense model will enable GoPro to return to profitability and growth in the second half of 2018.”
2018 Products and Operating Expenses
In 2018, GoPro will continue to innovate with several new products aimed at new and existing customers. GoPro’s sharper focus will enable an $80 million reduction in operating expenses compared to 2017 levels, resulting in a target operating expense level of below $400 million for 2018 on a non-GAAP basis.
The lower non-GAAP operating expense target will be achieved through a variety of strategies, including:
GoPro founder and CEO Nicholas Woodman will reduce his 2018 cash compensation to $1.
Although Karma reached the #2 market position in its price band in 2017, the product faces margin challenges in an extremely competitive aerial market. Furthermore, a hostile regulatory environment in Europe and the United States will likely reduce the total addressable market in the years ahead. These factors make the aerial market untenable and GoPro will exit the market after selling its remaining Karma inventory. GoPro will continue to provide service and support to Karma customers.
A restructuring of GoPro’s business – the job cuts mentioned about – will result in an estimated aggregate charge of $23 million to $33 million, including approximately $13 million to $18 million of cash expenditures as a result of a reduction in force, substantially all of which are severance and related costs, as well as approximately $10 million to $15 million of other charges, consisting primarily of non-cash items. GoPro expects to recognize most of the restructuring charges in the first quarter of 2018.
