GoPro Announces a Restructuring

As part of a press release entitled “Solid Holiday Demand in the U.S. for GoPro HERO5,” GoPro announced, further down the press release, that its board of directors had “…approved a restructuring of the Company’s business.  The restructuring includes a global reduction-in-force, the closure of the Company’s entertainment division and the consolidation of certain leased office facilities.”

“The  Company  estimates  that  it  will  incur  total  aggregate  charges  of  approximately  $24  million  to  $33  million  for  the  restructuring,  including approximately $13 million to $18 million of cash expenditures as a result of the reduction in force, substantially all of which are severance and related costs, and approximately $11 million to $15 million of non-cash expenditures, consisting primarily of stock-based compensation expense and accelerated depreciation associated with office consolidations. The Company expects to recognize most of the restructuring charges in the fourth quarter of 2016.”

“The restructuring includes…the elimination of more than 200 full-time positions plus the cancellation of open positions for a reduction in force of approximately 15 percent.”

They also announced that Anthony Bates will “cease serving” as President effective December 31.

To save me some typing, you might want to review the article I wrote a couple of weeks ago on GoPro’s last quarterly results.  I had noted a weakening in the balance sheet. I also said, “They project that operating expenses will be around $780 million in 2016, but will fall to $650 million in 2017.  I’ll be interested to see if they can do that.  Given their competitive imperatives as they describe them, it might be a challenge.”

Now, we’ve been told how they are going to achieve that operating expense reduction.  Though entertainment wasn’t generating meaningful revenue, it was part of their strategic future.  Closing it creates a future that’s more camera and accessories oriented.  To the extent they are a device company they are required to at least keep up with technology and functionality in their space.  I’m wondering if they can do that given who some of their competitors in devices are and I am especially wondering if they can do it given these expense reductions.  But the weaker balance sheet and revenue base don’t seem to support higher expenditures.

This, happily, becomes a mercifully short article.  Is GoPro a solid brand?  I think so.  Can it make money in its originally defined niche?  I think so.  Can it compete in consumer electronics against much better resourced competitors, be a public company and get the required growth by proselytizing in a much larger and diverse market without damaging the brand?  Not so sure about that.

That’s the caution I’ve been raising since GoPro went public.  For more details, see my previous posts.