Question

What strategic actions could Mr. Woodman take to reestablish GoPro’s financial and market performance?

Answer 1

Financial Scenario of GoPro:

Go pro with an approximate $40 million revenue shortfall that the company had a tough time explaining. Jim Suva, an analyst at Citicorp, asked on the company’s conference call why sales were strong during Black Friday and Cyber Monday, but still came in below expectations. He wondered if promotional pricing was a factor.

“We did have terrific promotions during the period, and . . . the lineup across the board has never been better at each SKU,” GoPro Chief Executive Nick Woodman said. “So, we expected to see a bit better performance than we did. I think it was a host of reasons, but honestly, there’s nothing conclusive that we’ve identified that would explain why we came up a little bit short.”

Woodman, who has 73% voting control of the company, has been the common denominator, remaining at the helm since he first came up with the idea for the GoPro action camera. Indeed, he has made some difficult decisions, such as canceling product forays into new areas, and laying off staff in 2018. He volunteered to take a nominal salary in 2018 of $1, according to SEC filings, and to forego salary and cash bonuses. But despite those efforts, the company is still underperforming.

Strategic Options:

• Growth-oriented investors looking at GoPro’s financial performance since the IPO might want to review the company’s revenue trajectory. After peaking at $1.62 billion in 2015, revenue dropped to $1.16 billion in 2016, reached $1.17 billion in 2017, fell to $1.14 billion in 2018 and showed an uptick to $1.19 billion in 2019. The company remains unprofitable on a GAAP basis annually, although it told investors it hopes to be profitable on a non-GAAP basis for 2020.
• Its chief financial officer, who was also appointed chief operating officer, talked about the company’s operating progress in the past few years.
• “We are pleased with the positive impact our operational initiative had on our financial performance as shown by the continuous improvement to our bottom line,” said Brian McGee, GoPro’s CFO. “Looking back in 2016, we had a non-GAAP net loss of $201 million, which has improved each successive year to a net loss of $96 million and $32 million in 2017 and 2018, respectively, and finally, returning to profitability in 2019 with non-GAAP net income of $35 million.”
• Even with these incremental improvements, GoPro has now become the poster child — a title this column once gave to Zynga Inc. ZNGA, +2.03% — for everything that is wrong with founder control. The company keeps trying different tactics, such as improving its software or going into the entertainment business, but it continuously comes up short. If GoPro were not founder-controlled, it’s unlikely that Woodman would still be CEO.

1. Hiring a new CEO

GoPro founder and CEO Nick Woodman can't be ousted, since he's the top shareholder and still owns about a third of the company's shares.

But under Woodman's leadership, GoPro leapt into new markets -- like media content, VR, and drones -- without doing enough due diligence. Those efforts all flopped, leaving GoPro stranded in the saturated action camera market it was trying to escape. The launch of the Karma, which was hit by an embarrassing recall, is symptomatic of GoPro's execution issues under Woodman.

Woodman also repeatedly overestimated the company's pricing power, as seen with the Hero 4 Session debacle and the recent $100 price cut on the Hero 6. He wasted time and resources launching accessories like pet harnesses, head straps and stabilization grips, which only appealed to niche users within its small core market.

GoPro recently reduced Woodman's annual cash pay to $1, but that move is symbolic and won't make him a better leader. For GoPro to survive, Woodman must step aside and let someone else -- preferably an outsider -- take the helm.

2. Expanding more aggressively in Asia

GoPro's strongest market in recent quarters was its APAC (Asia Pacific) region, which posted 153% annual sales growth last quarter. It had annual sell-through growth rates of 25% in China and 99% in Japan (according to research firm GfK), indicating that its products can withstand competition from cheaper "GoPro clones" like Yi Technology's popular action cameras.

But here's the problem: APAC revenues only accounted for 22% of GoPro's top line during the first nine months of the year. If GoPro invests more heavily in its expansion in China, Japan, and other Asian markets, it might get its revenue growth back on track.

3. Expanding into adjacent camera markets

Expanding into higher-growth camera markets like body cams or home security cams could also diversify GoPro's business away from traditional action cameras. Market Research Future expects the global body cam market to grow at a compound annual growth rate (CAGR) of 17% between 2016 to 2021, and the global home security camera market could grow at a CAGR of 11% between 2017 and 2023.

If GoPro enters the professional body cam market, it could give Axon some competition while diversifying its own customer base away from athletes and outdoor enthusiasts.

Meanwhile, the IP and cloud-based security camera market is fragmented among a myriad of players, but GoPro could disrupt them with a well-developed security product. In addition, GoPro's cloud backup service -- which it launched in late 2016 -- could be well-suited for backing up both body cam and security videos.

4. Buying other companies or selling itself

GoPro finished last quarter with $196.6 million in cash, cash equivalents, and marketable securities, and $127.9 million in long-term debt. This doesn't give it much room for big acquisitions, but it could still keep an eye out for wearable camera or computer vision start-ups which could shift its focus away from its saturated core market.

Lastly, GoPro should consider selling itself. It's still the market leader in the niche action camera market, and has a strong brand and social media presence.

Its enterprise value of just over $750 million makes it a tiny purchase for bigger companies. A potential suitor could be Foxconn, which was one of GoPro's earliest investors and still owns a significant stake in the company.