GoPro’s holiday season was even worse than the company predicted

Photo: Sean O’Kane / The Verge

Yesterday, GoPro released its final financial figures for the last quarter of 2017, giving us a wholesale look at how the company performed across the year, including how it finished during the holiday stretch. The results aren’t as bad as they were during the company’s awful 2016, but they’re not great either.

GoPro had already guessed in November that it was in for an underwhelming fourth quarter, and that was two months before it canceled the Karma drone and laid off hundreds of employees. When the company announced that news in January, GoPro reduced its expectations again. What was supposed to be a quarter with $470 million in revenue was now only supposed to generate about $340 million. Yesterday’s final results show GoPro even underperformed that estimate, bringing in just $334 million and change.

By revenue, that’s the worst fourth quarter for GoPro since the company went public in 2014.

GoPro CEO Nick Woodman spoke to The Verge back at CES in early January, where the company had arranged for us to hop in a few BMW M5s and do donuts around GoPro’s new 360-degree Fusion camera. Before we did any of that, we talked about the news that GoPro was canceling Karma, and what the state of his company looks like going forward.

Regarding the company’s rough finish to 2017, Woodman chalked it up, in part, to GoPro taking too long to understand that it should have discounted the cameras the Hero 6 was supplanting, the Hero 5 Black and Hero 5 Session.

“The data is clear that our customers demand a couple of things from us every fourth quarter if we hope to sell them a new GoPro,” Woodman said. “They obviously demand that we introduce a compelling new model. And they demanded that we offer them last year’s model at a reduced price. And we failed on that second part. Hero 6 we nailed. Fusion we nailed. But selling Hero 5 Black and Hero 5 Session at the same price that we offered them a year earlier caused a problem.”

How does a company with such a long and deep relationship with both the retail industry and its customers mess this up? Woodman argued that GoPro’s dominance in the action camera market — the company’s products accounted for over 80 percent of action cameras sold, according to an NPD report cited in its earnings release — has made it hard to notice when something’s amiss.

“We don’t really have significant direct competition to take market share from us when we make a mistake,” he said. “AT&T has Verizon. Ford has Chevy. BMW has Mercedes. So when AT&T makes a product pricing mistake and market share quickly goes to Verizon or T-Mobile, AT&T can say, ‘oh my God we’ve got to fix this problem and course correct.’ In GoPro’s case, historically, when a consumer hasn’t purchased GoPro, they more often than not don’t buy anything.”

Woodman continued this thought on a call with investors this week. “A competitor would help us understand the dynamics of our market, our business, pricing sensitivity. The challenge has been, frankly, that in many cases the only data we had access to was our own. So that’s why some of these pricing challenges that may seem obvious really were not obvious.”

GoPro cut the prices of the Hero 5 Black and Session by $100 in December, a move that it says doubled and even tripled sales in some markets. It made a similar price cut to the Hero 6 in January. But the damage to the holiday season was done. GoPro had gone from its first profitable quarter in two years to stepping on its own foot.

And then it canceled Karma.

Karma was a product that always seemed fraught. It had been delayed for months by the time a screaming Woodman pulled the drone out of a backpack and thrust it in the air like he was standing on top of Pride Rock. It was recalled within weeks, on election night no less. And when it came back on the market, it never really stacked up, feature-wise, to industry leader DJI’s drones. (GoPro’s argument on this front has always been that Karma was made for GoPro users, not necessarily as direct competition to DJI.)

But the decision to cancel Karma was a purely financial one, according to Woodman. “Our drone program was the most expensive program that we had going at the company, for the smallest number of customers,” he said. “When you look at the total number of Karmas we were going to sell over the lifetime of Karma, and you compare that to just one year’s sales of GoPros, it is absolutely clear that our customers want to buy GoPros from us, not really a drone.”

Knowing that, Woodman said that the margins on the Karma were too thin compared to what it makes on its cameras to justify keeping the program alive. “Cameras are just a lower cost for us to develop, because the whole system architecture of a camera is smaller,” he said. “It’s a smaller engineering job. It’s a smaller user experience job. Everything about a camera program is smaller than Karma. Karma was a Formula One car of consumer electronics products. You’ve got the drone. You got the controller. You’ve got the grip. You’ve got the gimbal. And all of these systems need to work together in harmony.”

Still, Woodman argued that Karma wasn’t a lost cause. “We had a dramatically bad launch. But the fact that in February 2017 we were able to relaunch it, and have it become the second best-selling drone in the thousand-dollar-and-up category is a testament to the terrific concept,” he said.

The fourth quarter of 2017 wasn’t all bad for GoPro. The company lost less money than it did in the fourth quarter of 2016 ($55 million versus $115 million). And the year as a whole was a marked improvement on the abysmal 2016 it suffered. GoPro nearly halved its losses from year to year and increased its cash balance to a total of $247 million. It is projecting operating expenses in 2018 of less than $400 million, which would be almost half of what the company spent in 2016.

On the investor call, Woodman spoke about what the company plans to do moving forward. In 2018, he says GoPro will release “multiple new cameras designed to resonate with a broad range of consumers,” and that a new entry-level product is coming in the first half of the year. GoPro will also try to arm itself with more analytics so that it has a better understanding of what customers think of those products.

As for the rumors of whether the company is actively exploring a sale, Woodman told me at CES that rumors is all they are when I asked what is going on. For all his charm and bluster, the CEO knows when to call on his years of experience running a sometimes tumultuous company to give an answer that won’t rock the boat.

“The simple answer to that is we don’t have a sale process going. We’re definitely open to opportunities that would allow us to scale GoPro in a way that we couldn’t alone, but my job as an entrepreneur and the CEO of a publicly traded company, my responsibility is to provide a return to our investors,” he said. “If there is an opportunity allows us to grow GoPro and provide a compelling return to investors, absolutely we would entertain that. But at the same time, day to day we have to strategize and operate the business as though we’re going to remain independent, because that’s the responsible thing to do.”

After that, we headed to the cars. Following some brief instruction, Woodman got into the BMW, looked out the window, and shouted, “rip it!” A few donuts later, the tail of his car smashed the Fusion camera into the pavement.

Comments

I would love to see an affordable, high quality stereo 180 (or more) VR camera. I think GoPro should have the ability to do that well.

This is a good idea, and I’d be surprised if they’re not working on VR/3D concepts. They need to expand but the Karma was a bridge too far, this would be much closer to what they’re already good at.

There are a zillion decent Go-Pro knockoffs available for a lot less money, so my guess is their bread-and-butter cams are not selling like they used to.

I think GoPro is overestimating people’s interest in action cameras. And also in upgrading action cameras. If one bought a HERO 4 Black, they still have a VERY capable & decent GoPro camera years later. GoPro hasn’t improved their HERO’s drastically enough to justify to the average consumer why they need to upgrade. Also, the high cost of entry isn’t the most appealing.

It depends on what you’re looking for I guess. The latest image stabilization is producing dramatically better footage (without a gimbal) than previous Hero cameras, but if you’re just sharing a quick 2-minute video to facebook every once in a while you probably don’t care. If you’re a hobbyist trying to make better quality home videos or even a vlogger/filmmaker of some sort, that probably is a worthwhile upgrade.

I agree, I have always felt like this is a niche market, and I’ve been surprised at how big they (GoPro) seemed to be getting. Seems like the brakes have finally been put on, most likely from market saturation. I mean there are only so many mountain climbers, BASE jumpers, BMX bikers and professional skateboarders on YouTube.

I also don’t really agree with Woodman that they have no competition. If they ever want to expand beyond that action sports niche, then they have to look at the cell phone as competition. I looked into buying a cheap GoPro on a trip I took a couple years ago where I knew I’d be doing some ziplining and ATV riding. But it was too expensive for using on just one trip, so I ended up buying a harness to hold my phone while ATV riding (got some good footage!), and I just shot some video of the other people ziplining and bought the pics of myself that the guides took of myself and my wife.

Most people already have a perfectly good action cam in their cell phone. I know there are things the GoPro can do that cell phones can’t, but for average people those uses (being able to wear one on your head or attach it to the side of a car) just aren’t worth paying even $200 for in most cases. (I might have paid $100, if the camera itself was close to my phone camera in image quality.)

Q4 2016 GoPro’s revenue jumped by $300 million, but profits stayed flat. What in the name of all that is holy did they do with that money?

In GoPro’s case, historically, when a consumer hasn’t purchased GoPro, they more often than not don’t buy anything."

That part jumped out at me as being particularly naive. Perhaps they need a gut check – people are going on Amazon and buying the "knockoff" cameras that are half the cost (or less) and in many cases you get a similar quality. To say that a potential Gopro customer just wouldn’t buy anything seems very out of touch to me.

They have a product that is being increasingly commoditized, without the protection of garden walls. It’s probably bad for their stock price for them to publicly acknowledge this.

You’re right. It is naive to think that way. For example. I’m going on a trip in June and wanted an action camera so I do not have to rely on my phone. At first, I thought a GoPro made sense, but looking at some of the action cameras on Amazon, i’m starting to seriously consider them because the price is so much lower and you’re receiving comparable components.

By revenue, that’s the worst fourth quarter for GoPro since the company went public in 2017.

Umm. Something seems wrong here.

They should have tried to acquire DJI after their IPO when they had money to spend. DJI and the drone market was much smaller back then. They should have known they would be competing against 3rd generation products before their drone even took flight.

How is this not a worse quarter than 16Q4? At 16Q4, though we have the Karma recall and Hero 5 supply chain problem (used as excuse for poor performance), we still have $540 million in sales, increased sales in US, EU and Asia. 17Q4, with perfect international channel fill of Hero 5 and 6, Karma drone and grip, and limited release of Fusion, was 34% lower with sales figure shrinking everywhere!

And I think GoPro know that this price move was risky but they have to do it anyway. Simply because, if they didn’t do it that way, their GPM will be suppressed. It is easier to say that they misjudged the pricing than saying no one want their product and they have to slash prices.

Damn, they really are going the way of those Flip cameras.

GoPro is dead. DJI will take it’s place. Who needs an action cam when you have a flying robot to film you?
Biggest mistake was skipping a year on the main Hero line in 2015.

I for one, would love to get in on a fire sale.

a real possibility with good competitors in the different spaces. yi for example.

GoPro is still the best in most matrix if one ok to pay for premium.

YouTube already shown us that for dude who only looking for FHD you can save 1/5 -1/2 from any of this.
YI , Xiaomi , Garmin , Sony , Polaroid, SJ, ThiEye, Firefly

ps. having 3 good action cameras mostly better than 1 (in my book)

I do like the Fusion I think its a step in the right direction it happens to have the best picture of the mid price 360 cameras. The Karma drone was a Flop. DJI understood the market. A person who spends $1000 on a drone has many cameras. They just want a drone that is easy to fly and works. They should have also made the action cams with better quality and low light. They have to compete with iPhones and Drones that have better cameras. I think they have lost touch with their core audience. But the Fusion is a good next step (even though the software is buggy LOL)

Following some brief instruction, Woodman got into the BMW, looked out the window, and shouted, "rip it!" A few donuts later, the tail of his car smashed the Fusion camera into the pavement.

If you wanted a metaphor for GoPro, there’s not going to be one better than this.

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