Go Pro Case Study

Copyright ©2021 by David L. Turnipseed and John E. Gamble. All rights reserved.

David L. Turnipseed

University of South Alabama

John E. Gamble

Texas A&M University–Corpus Christi

GoPro had been among the best examples of how a company could create a new market based upon product innovations that customers understood and demanded. However, by late 2015, the action camera product niche appeared saturated. The company had grown from a humble beginning as a homemade camera tether and plastic case vendor in 2004 to an action camera vendor with $350,000 in sales in 2005 (its first full year of operation) to a global seller of consumer electronics with revenue of $1.6 billion in 2015. The company’s shares had traded as high as $88 in October 2014, just months after its initial public offering (IPO) in June 2014. In 2014, GoPro was ranked the number one most popular brand on YouTube with more than 640 million views, and an average of 845,000 views daily. In 2015, average daily views were up to 1.01 million.

Abruptly, in the third quarter of 2015, GoPro’s magic disappeared, and, by the fourth quarter of 2015, its revenues dropped by 31 percent from the prior year. In addition, its net income fell by 128 percent to a net loss of $34.5 million. By the end of December 2015, the stock traded at less than $20. By the end of December 2016, revenues had dropped another 27 percent to $1.2 billion from $1.6 billion in 2015. In addition, the company recorded a net loss of $419 million in fiscal 2016, helping drive its share price to less than $9.00 in December 2016.

The company launched a turnaround plan in early 2017 and reduced its workforce in an effort to reverse its decline: first quarter sales in 2017 increased by 19 percent from the first quarter 2016, and its operating expenses declined by $50 million. Its adjusted EBITDA improved from an $87 million loss in the first quarter of 2016 to a $46 million loss in the first quarter of 2017. The HERO5 Black was the best-selling digital image camera in the United States in the first quarter of 2017, and GoPro’s drone Karma with the HERO5 camera was the number-two selling drone priced over $1,000 in the United States.

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 percent 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 four 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 two 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 page C-185prices: in the fourth quarter 2019, share prices were slightly over $4.00, which was 95 percent below its $88.00 high.

In 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. A summary of the company’s financial performance for 2015 through 2019 is presented in Exhibit 1. The performance of GoPro’s shares from June 2014 through May 2020 is presented in Exhibit 2.

EXHIBIT 1 Financial Summary for GoPro, Inc., 2015–2019 (in thousands, except per share amounts)

  2019 2018 2017 2016 2015

Revenue  $1,194,651  $1,148,337  $1,179,741  $1,185,481  $1,619,971 

Gross Profit  412,789  361,434  384,530  461,920  673,214 

Gross Margin  34.6% 31.5% 32.6% 39.0% 41.6%

Operating income (loss)  (2,333)  (93,962)  (163,460)  (372,969)  54,748 

Net Income (loss)  (14,642)  (109,034)  (182,873)  (419,003)  36,131 

Net income (loss) per share:                

Basic  $(0.10)  $(0.78)  $(1.32)  $(3.01)  $0.27 

Diluted  $(0.10)  $(0.78)  $(1.32)  $(3.01)  $0.25 

Source: GoPro, Inc. 2019 Annual Report.

EXHIBIT 2 GoPro Stock Performance, December 2014–December 2019

Source: GoPro, Inc. 2019 Annual Report.

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.

Company History

GoPro began as the result of business failures. GoPro’s founder, Nick Woodman, grew up in Silicon Valley, the son of wealthy parents (his father brokered the purchase of Taco Bell by Pepsi). Woodman started an online electronics store, EmpowerAll.com, which failed. He subsequently started an online gaming service, Funbug, that failed in the dot-com crash of 2001, costing investors $3.9 million. Woodman consoled himself after the failure of Funbug with an extended surfing vacation in Indonesia and Australia. While on vacation, he fashioned a wrist strap from a broken surfboard leash and rubber bands to attach a disposable Kodak camera to his wrist while on the water. Woodman’s friend and current GoPro creative director Brad Schmidt joined the vacation, worked with the camera strap, and observed that Woodman needed a camera that could withstand the sea.

After his vacation, Woodman returned home and focused on developing a comprehensive camera, casing, and strap package for surfers. Originally incorporated as Woodman Labs, the company began page C-186doing business in 2004 as GoPro. Woodman found a 35-mm camera made in China that cost $3.05 and sent his homemade plastic case and $5,000 to an unknown company, Hotax. A few months later, Woodman received his renderings and a 3-D model from the company and sold his first GoPro camera in September 2004 at an action-sports trade show. Also that year, GoPro hired its first employee, Neil Dana, who was Woodman’s college roommate.

The two-man company grossed $350,000 in 2005, the first full year of operation. Woodman wanted to keep the company private as long as possible: he invested $30,000 personally, his mother contributed $35,000, and his father added $200,000. In a fortunate coincidence for GoPro, in fall 2006 Google purchased a then-small company, YouTube, and in spring 2007, the GoPro HERO3 with VGA video was launched. According to Woodman, the competing name-brand cameras available at the time did not have good video quality. The combination of GoPro’s HERO3 video quality and the increasing popularity of YouTube caused GoPro’s sales to triple in 2007.

In 2007, although the company had revenues in the low seven figures, Woodman began to question his ability to take the firm further. He negotiated a deal to turn the company over to a group of outside investors, but before the deal was finalized (which was at the beginning of the 2008 financial crisis), the investors wanted to lower the valuation of the company. GoPro was profitable, and Woodman did not believe that the company was having any ill effects from the economy. He refused to negotiate the company’s value down, and the company’s sales were over $8 million that year. The company’s growth continued and in 2010, Best Buy began carrying GoPro products, which was a clear indication that the company was accepted in the market.

In May 2011, GoPro received $88 million in investments from five venture capital firms (including Steamboat Ventures—Disney’s venture capital company) which enabled Woodman, his family, and some GoPro executives to take cash from the company. Also in 2011, GoPro acquired CineForm, a small company that had developed a proprietary codex that quickly and easily converted digital video files among different