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GoPro Inc (GPRO) Karma Drone is a Gift to Shareholders, But Not ‘Till Christmas

GoPro In (NASDAQ:GPRO)
GoPro Inc , the action-camera maker is betting that delaying the Karma drone to the holiday season will be better for sales. This was disappointing news to shareholders but on the bright side, the firm’s mobile app was downloaded 2.8 mn times in Q1 2016 bringing the total number of downloads to date at nearly 27 mn. In comparison, its desktop software GoPro Studio saw nearly 1.5 mn installs in the same quarter, bringing cumulative installs for the editing software to 16.5 million. This was disclosed in the latest earnings report released by the firm yesterday after the market closed.
GoPro In (NASDAQ:GPRO)

GoPro Inc Risks Delaying Karma

Unlike Wedbush analyst Michael Pachter’s claims, GoPro’s HERO4 Session had quite a good time flying off the shelves in Q1. It wasn’t quite as bad a quarter as the firm had initially feared. Unit sell-thru was close to first quarter 2015 levels, a quarter which benefited from the launch of HERO4. Unit sell-thru rates were about 50% higher than sell-in which drove global inventory levels down.

More specifically, GoPro estimates that unit sell-thru fell less than 10% from the same year-ago period despite last year’s benefit of the HERO4 launch. In fact, net inventory declined 25.8% from the end of 2015 to its lowest level since Q3 of 2014.

But the CEO Nick Woodman also followed with some bad news: ‘While we had to make the difficult decision to delay our drone, Karma, the upside is that Karma’s launch should now benefit from the holidays.’ As such — and as long as Karma is still delivered in time for the crucial winter season, Motley Fool’s Steve Symington suspects the market will be willing to shrug off the delay given the relative strength in the firm’s core business.

Some Relief with Inventory Levels

In the last quarter, GoPro decided to narrow its camera-device offering to its three highest-end models. Now, as per NPD retail tracking, the firm commanded four of the top-five products on a unit basis in the combined digital camera/camcorder category in the United States. This must include one of its now-discontinued models. That includes the No. 1 spot, as the HERO4 Silver remained the segment’s best-selling device on both a unit and dollar basis. Meanwhile, HERO4 Session moved to the No. 2 spot — up from No. 8 last quarter — on a unit basis, as it effectively plugged the hole left by the absence of GoPro’s lower-end HERO and HERO+ LCD models.

NPD data also showed GoPro Inc ‘s first-quarter combined digital camera/camcorder unit share in the U.S. rose 150 basis points year over year, to 20.9% — albeit a sobering statistic that, combined with GoPro’s falling revenue, serves as an indication of the decline of GoPro’s core market. International sales represented more than half of total revenue in the quarter, as GoPro held six of the top-10 camcorders in Europe on a unit basis, and China remained a top-10 market for the company.

Average daily video exports grew 33.5% year over year, to 52,000, during the quarter. During the subsequent conference call, GoPro also revealed that its previous acquisitions of leading mobile-editing apps Splice and Replay were completed for cash of slightly more than $100 million.

But GoPro also made a lot of progress handling its inventory problem, and its strategic decision to narrow its capture-device product line seems to be having the desired effect. While GoPro Inc investors may not be completely satisfied, Symington feels that they should feel just a little better about where the company stands today.

In the end, this report may not have contained everything GoPro bulls had hoped to hear — less bad is, after all, still not good. And the delay of Karma does give established rivals in the burgeoning drone space that much more time to cement their market-leading positions.

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