GoPro shows its vulnerability after horrific Q3 earnings

Expectations were already incredibly low for GoPro this go around and yet somehow the company managed to eclipse even the worst fears of analysts. The company’s stock trading was halted prior to the release of results that missed revenue expectations by 23 percent and nearly $75 million.

When trading began again, shares were down 22 percent. This means that, in a matter of minutes, the market cap of the company melted from $1.23 billion to $972 million — the spontaneous combustion of roughly $250 million in value.

Prior to the actual release of this quarter’s earnings results, investors had been focused on one thing — projected sales for Q4. Today’s posted revenue of $240.56 million and a loss of $0.60 per share is so bad, however, that it’s likely to change the whole conversation. For reference, in advance of today’s release, the consensus among Wall Street analysts was that shareholders could expect a loss of $0.36 per share on revenues of $314.06 million.

Shareholders had given up on the promise of a knockout third-quarter earnings report all the way back in early October. Over the course of a pessimistic 21 trading days, the stock tumbled nearly 30 percent, giving up the entirety of its gains from a relatively positive streak that stretched all the way back to May.

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This news comes at a time when GoPro has been banking heavily on the sales performance of its newly released flagship camera and drone this holiday season. However, because both devices didn’t go on sale until October, neither are going to be accounted for in the traditional Q3 metrics that GoPro is reporting.

The problem with pegging your company’s hope on the holiday season is that you run the risk of smashing head-on into supply chain issues. GoPro is calling its production “compromised” and it “anticipates difficulty in meeting forecasted demand.” The majority of these supply issues will impact the new Hero5, which is particularly bad because GoPro expects a majority of its revenue to come from its traditional camera products rather than the new Karma drone.

It’s still too early to tell if the company’s bet on drones and aerial capture will pay off in the long run. It’s going to be difficult for GoPro to repeat its action camera dominance with both drones and virtual reality. The late start to addressing those growing markets shows a lack of direction from the company. This sentiment was echoed by investors on the earnings call that questioned CEO Nick Woodman’s thesis for the business.

Earlier this year Woodman told TechCrunch that he had aspirations to turn GoPro into a “lifestyle media company.” It seems those plans may have to be put on hold as the company told investors to expect “2017 to be more of an evolutionary year, rather than a revolutionary year.”

GoPro is issuing Q4 guidance targeting revenue of $625 million with $25 million in wiggle room. This would mean that total revenue for 2016 would fall somewhere between $1.25 and $1.3 billion. For next year, the company wants to cut non-GAAP operating expenses down to $650 million and “return to profitability.”

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