GoPro in 2020: Have Its Turnaround Strategies Failed?
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After a recall of the Karma drone for flight failure, GoPro abandoned the drone business in early 2018. The number of camera units shipped in 2018 was flat, compared to the prior year, and the average selling price decreased which put downward pressure on the year’s revenue. The company announced another restructuring in 2018, which resulted in an additional reduction in the global workforce to below 1,000 by the end of the year, and continuing reductions in operating expenses. These efforts met with mixed results, and revenue continued to fall, dropping 2.7 percent from the prior year, and gross margin fell from 32.6 percent in 2017 to 31.5 in 2018. Operating expense decreased from 46 percent of revenue in 2017 to 40 percent in 2018. Yet fiscal 2018 produced a loss of $109 million.
The dismal trend in financial performance continued, albeit with a 4 percent uptick in revenue in fiscal 2019. GoPro’s 2019 gross margin increased to 35 percent, up from 31 percent in 2018, and adjusted EBITDA increased by 230 percent from 2018. Camera units shipped in 2019 were down 2 percent from 2018. Although the net loss in 2019 was the smallest in the past four years, it nonetheless added $14.6 million to GoPro’s accumulated deficit. The continuing subpar operation took its toll on the share prices: in the fourth quarter 2019, share prices were slightly over $4.00, which was 95 percent below its $88.00 high.
GoPro’s first quarter, 2020, results appeared to be the death knell for the struggling company. In the first quarter, despite GoPro.com recording record revenue, its subscription service up 69 percent year-over-year, and social followers increasing to over 44 million, GoPro’s fortunes turned even more negative. The company experienced a 50 percent decrease in revenue from the same period, 2019, a decline in gross margin, a 177 percent increase in operating losses, and a 161 percent great net loss, over the same period in 2019, yet GoPro continued to be the industry leader in action cameras. The company announced another restructuring aimed at reducing expenses. Plans included trimming the remaining workforce by 20 percent, reducing operating expenses by $100 million, and cutting an additional $250 million from operating expenses in 2021.
In mid-2020, GoPro was without doubt a dominant force in the global action camera industry, however, years of net losses had resulted in an accumulated deficit of $583 million. The first quarter 2020 had produced dismal results, and although the COVID-19 pandemic could be partially to blame, the continuing losses further weakened the struggling company. The company’s management was faced with the critical, time-sensitive mandate: find a way to increase revenue and restore profitability before the lack of liquidity impeded the ability to make proactive strategic moves.
- A 5:01 video from 2019 entitled, “The Future of GoPro: A Conversation with Founder and CEO Nick Woodman”. It can be viewed at https://www.youtube.com/watch?v=vuvYrY8VViw.
- A 13:01 video from 2019 entitled “The Ups and Downs of GoPro.” It can be viewed at https://www.youtube.com/watch?v=PH1jTxGa-oc.
Questions
1. What are the strategically relevant factors in GoPro’s macro-environment? What does a PESTEL analysis reveal about the action camera in 2020? Does the external environment of the drone industry present attractive opportunities to GoPro?
1. What is your assessment of GoPro’s business model and competitive strategy? Does its approach to delivering customer value contribute to a sustainable competitive advantage?
2. What are GoPro’s key resources and competitive capabilities? What is the competitive power of its most important competitive assets?
3. What is your assessment of GoPro’s financial performance the past three years? (Use the financial ratios in the Appendix of the text as a guide in doing your financial analysis.)
4. Based on the preceding analysis, and the first quarter 2020 statement of operations, what is your overall evaluation of GoPro’s business situation as the company moved into 2020? Does the company’s strategy have the potential to provide the company’s shareholders with an opportunity for above-average market returns in the next 3 – 5 years?
5. What strategic actions should GoPro management take to reestablish GoPro’s financial and market performance?
