GoPro Inc
NASDAQ:GPRO
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GoPro Inc
Earnings Call Analysis
Summary
Q4-2023
GoPro initiated its multiyear strategy to expand its total addressable market in 2023, shifting focus to drive sales growth and reach new customers through reduced camera pricing, enhanced marketing, and expanded global retail presence. This pivot contributed to a 25% year-over-year growth in retail channel unit sell-through and a 3% rise in overall unit sell-through from May to year-end. Despite a strategic move that reduced GoPro.com's revenue share from 33% to 14% by eliminating subscription discounts, the fourth quarter saw a non-GAAP profit with a revenue of $295 million, albeit below the $325 million guidance, mainly due to the underperformance in North American demand and a decision not to discount the HERO10 Black camera. The company expects a rise in gross margin from 32.5% in Q1 to between 37% and 38% in Q4 of 2024. Moreover, GoPro plans to introduce four new camera SKUs and acquire Forcite Helmets to tap into a $3 billion serviceable motorcycle helmet market.
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Good afternoon. Thank you for attending today's GoPro Fourth Quarter 2023 Earnings Call. My name is Cole, and I'll be the moderator for today's call. [Operator Instructions]. I would now like to pass the conference over to our host, Chris Clark, VP of Corporate Communications. Please go ahead.
Thank you, Cole. Good afternoon, and welcome to GoPro's Fourth Quarter and Full Year 2023 Earnings Conference Call. With me today are GoPro's CEO, Nicholas Woodman; and CFO and COO, Brian McGee. Today's agenda will include a brief commentary from Nick, followed by Q&A. For detailed information about our fourth quarter and full year 2023 performance as well as outlook, please read our Q4 and 2023 earnings press release and the management commentary we've posted to the Investor Relations section of GoPro's website.
Before I pass the call to Nick, I'd like to remind everyone that our remarks today may include forward-looking statements. Forward-looking statements and all other statements that are not historical facts are not guarantees of future performance and are subject to a number of risks and uncertainties, which may cause actual results to differ materially. Additionally, any forward-looking statements made today are based on assumptions as of today. This means that results could change at any time, and we do not undertake any obligation to update these statements as a result of new information or future events. To better understand the risks and uncertainties that could cause actual results to differ from our commentary, we refer you to our most recent annual report on Form 10-K for the year ended December 31, 2022, and which is on file with the Securities and Exchange Commission and other reports that we might file from time to time with the SEC.
Today, we may discuss gross margin, operating expense, net profit and loss, adjusted EBITDA as well as basic and diluted net profit and loss per share in accordance with GAAP and on a non-GAAP basis. A reconciliation of GAAP to non-GAAP operating expenses can be found in the press release that was issued this afternoon. which is posted on the Investor Relations section of our website. Unless otherwise noted, all income statement-related numbers that are discussed in the management commentary and remarks made today other than revenue are non-GAAP.
Now I'll turn the call over to GoPro's Founder and CEO, Nicholas Woodman.
Thanks, Chris, and thanks, everybody, for joining us today. 2023 marked the beginning of our multiyear TAM expanding strategy, targeting long-term revenue, subscriber and profit growth. Beginning in May 2023, we initiated the first stage of our growth initiatives, including a return to lower prepandemic pricing to drive unit sales, the reintroduction of entry-level price GoPro cameras to drive volume and reach new customers, increased marketing to drive awareness and expanding GoPro's retail channel presence globally. These actions contributed to year-over-year retail channel and unit sell-through growth of 25% in the period from our shift in May to the end of the year. Across all channels, retail, combined with direct-to-consumer through GoPro.com, 2023 unit sell-through growth since our strategy shift was 3% -- from the May was up 3% from the period May 9 through the end of 2023, measured against the prior year period.
Our retail channel growth was largely offset by our GoPro.com direct-to-consumer channel, where we underestimated the impact of our strategic shift. In Q4, GoPro.com revenue, excluding subscription and services, was 14% of revenue, down from 33% the prior year period due primarily to our strategic decision to eliminate subscription-related camera discounts at the time of purchase on GoPro.com. We believe our sell-through growth in retail gives us and importantly, gives our retailers and distributors confidence to lean in as we look to launch a number of new products, as I'll touch on shortly. This, combined with our aggressive efforts to open more doors and expand our brand presence in all of our doors is creating a groundswell of opportunity at retail for GoPro.
Fourth quarter entry-level camera sell-through priced at $199 and $249 represented 28% of our product mix, up from 0 in the prior year when we had no products offered in this price band. However, in analyzing our 2023 holiday season performance, we believe consumers were looking for discounts irrespective of already low price points, which was an outlier from the behavior we've seen in prior years. This resulted in lower-than-expected sell-through of our $249 HERO10 Black product, which we did not discount during Q4. On the positive side, this resulted in better-than-expected margin in the fourth quarter. In 2023, we reinvigorated our marketing strategy to reestablish GoPro's larger-than-life brand presence across all of the major verticals we serve. 2024 is when we'll see GoPro's brand more loud and proud than we've seen in years, beginning with events like January's X Games, where fans tuned in to watch the world's best skiers and snow borders pushing the limits of their sport, with many athletes wearing GoPro cameras in competition, capturing footage that was integrated into the broadcast to share first person perspectives, help translate our expanded awareness efforts into sales, we've been aggressively expanding the number of retail doors where we sell our products.
Since May of 2023, we added more than 3,200 new retail doors which was ahead of our target for the year. We intend to continue to drive door growth with a target of 7,000 additional new doors over the next 2 years, bolstered by new products. In addition to growing door count, we plan to refresh our point of purchase merchandisers, expand in-store brand presence and enhance account management throughout the retail channel. Our Stage 1 growth initiatives outlined above delivered a profitable fourth quarter and second half in 2023 on a non-GAAP basis. Fourth quarter revenue was $295 million, below our guidance of $325 million. Q4 revenue was short guidance due to lower-than-expected demand trends in North America, particularly in December, driven in part by competition for share of wallet as well as lower-than-anticipated sales of HERO10 Black due to our decision to not discount this entry-level priced camera. The upside is that we retained margin on the HERO10 Black units we sold and this, combined with our high-margin subscription and service revenue to yield gross margin that outperformed the midpoint of guidance by 140 basis points. The improvement in gross margin plus savings in operating expenses during the quarter resulted in non-GAAP earnings per share of $0.02 for the fourth quarter.
In 2024, we expect gross margin to be 32.5% in the first quarter and improved throughout the year to 35% in the second and third quarters and to between 37% and 38% in the fourth quarter. This weighs out to a gross margin percentage in 2024 in a range of 35.5% plus/minus 50 basis points, up from 32% in 2023. As we begin 2024 and look to the greater long-term opportunity for GoPro, we believe it's essential that we significantly scale the number of products we sell to serve more consumers in more categories and markets. Our research identifies several growth opportunities where GoPro can extend our market leadership. As we enter stage 2 of our TAM expanding strategy, we plan to expand our product road map over the next 2 years. And in 2024, we plan to launch 4 new camera SKUs, giving us a lineup of cutting-edge industry-leading cameras ranging in price from a volume driving $199 up to $599, with more planned for 2025.
In January, we announced plans to acquire Forcite Helmets systems, an Australian maker of tech-enabled motorcycle elements. We believe tech-enabling motorcycle helmets represents a meaningful opportunity for GoPro to extend its technical and marketing capabilities to create differentiated solutions within a $6 billion motorcycle helmet market of which we believe we can service approximately $3 billion with an eye towards entering additional helmet markets over time. There are a number of on technologies used today by motorcycle enthusiasts, including communications digital imaging, navigation, safety alerts and more that we believe can be integrated into helmets for enhanced performance, convenience, value and safety. We are on track to close this acquisition this quarter and we'll share specifics about our product vision as we get closer to the expected launch of our first helmet in 2025.
To add more color, Motorsports has been core to GoPro's business for the last 15 years. We've developed a strong brand across all disciplines of professional and enthusiast categories of motor sports with a very strong following among motorcyclists. We are a major sponsor across a broad range of racing series events and athletes including the world's premier motorcycle racing series, MotoGP. In addition to leveraging our existing motorsports marketing and brand, we intend to leverage the motorsports retail channel we are currently building to support sales of our current camera line to also sell our helmets beginning in 2025. We also intend to partner with leading helmet brands as an OEM supplier to help them tech enable their own premium SKUs. We have enormous respect for leading brands and look forward to working with them to help drive innovation together. We are encouraged by early interest shown by some leading brands. Furthermore, we expect the success in the motorcycle helmet market can contribute to subscriber growth as we intend to support GoPro tech-enabled helmet owners with meaningful subscriber benefits and features.
Looking at our current subscriber base. we closed 2023 with more than 2.5 million subscribers, representing 12% year-over-year growth. Consistent with previous quarters, retention for annual subscribers who represent 90% of total subscribers was between 60% and 65% for the first year renewals and between 70% and 75% for second year renewals. Our new third year cohort is renewing at greater than 80% and Importantly, we now have a larger pool of subscribers who are up for renewal in their second or third year than we do for the first year, which we believe will be a tailwind for subscriber retention going forward.
Another positive for our subscription offerings is the initial release of our Quik desktop app for Mac OS and our new Premium+ subscription tier, both of which launched yesterday. The Quik desktop app, which is available at no additional charge to GoPro subscribers brings the simplicity and convenience of automatic edits to desktop users, along with powerful yet convenient manual editing tools, synced editing between mobile and desktop apps and the ability to import footage from any camera. We plan to launch a Windows version of the Quik desktop app later this year. We expect to grow subscribers in 2024, adding to the substantial ARR we are already generating. We expect subscribers to be between $2.5 million and $2.6 million by the end of 202 or 4% growth year-over-year at the high end of the range.
To summarize, the retail expansion strategy we kicked off in May of last year is successfully growing our business at retail. We're excited about our expanding product line. The significant number of retail doors were adding at a steady rate and a significant larger number of marketing activations we have planned throughout the year to drive awareness and demand, all of which we believe will contribute to growth. Our acquisition of Foresight reflects our belief that the GoPro brand can scale across multiple verticals globally. We have a number of exciting opportunities in front of us and as we move through 2024, we are focused on execution and creating value for our shareholders. It's good to be on the build again.
Operator, we are now ready to take questions.
[Operator Instructions]. Our first question is from Erik Woodring with Morgan Stanley.
I just had 2 questions quickly. And I wasn't sure on if the first one is for Nick or Brian, but last quarter, you laid out a fairly clear vision for 2024, guiding to, I think it was $1.1 billion to $1.2 billion of revenue, 10% unit growth plus. I think it was $40 million of net income you remove some of that language from the prepared remarks this quarter. So just how should we think about maybe the full year just beyond -- just beyond 1Q? And then I have a follow-up.
Yes. Maybe I'll start and [ Nick ] [indiscernible] chime in. I think, first of all, we just guided for the first quarter. Obviously, you saw that in our prepared remarks. I'll comment there, though, that has nothing to do with sell-through. That's actually going pretty well. We should be [ 550 million ] units plus or minus 50,000 units, which is in line with where we've been in the first quarter in the last 2 years. That's on sell-through. Sell-in will be a little bit less. We expect to tick channel inventory down about 17% to about 700,000 units. So that's why Q1 revenue is off a bit compared to on a year-to-year basis. We're still selling products, but not in as we deplete older inventory in favor higher-margin product that began shipping in Q2 and Q3. In addition, Nick talked about the investment we're making in product that's under review to expand our road map, and we're evaluating those investments or the level of those investments to '25 and '26. And that would obviously impact OpEx and all those decisions aren't done yet. And so we'll give an update on that on our next call.
All right. Maybe, Brian, just one point of clarification. In the prepared remarks in the table that shows first quarter guidance, there's a line that says unit sell-through and it says 400,000 units. You just alluded to 550,000 units. Just if you could just give some clarification on which one we should be looking for that would be super helpful.
I think that word sell-in with 400,000 [indiscernible].
400. Okay. All right. And then maybe just as a follow-up on the acquisition of Foresight you guys alluded to being able to service a $3 billion TAM, motorcycle helmet market TAM. Is that -- should we think of that as being incremental to your current TAM because I think of how that mounted GoPros as one of your primary use cases today. And so how do we think about what's incremental in new? And what technology you'd kind of be bringing to GoPro that you haven't been able to yet versus what is -- I don't want to use the term cannibalistic, but part of a market that you're already addressing today? And that's it for me.
[indiscernible]. You're right. In our prepared remarks, we actually [ spent 550 ] plus or minus 50, and it should have been unit sell- in the table Erik, so good catch.
Thanks for your question, Erik. There will be some cannibalization because you're right, there are many motorcycles who buy a GoPro to attach it to their helmet. But as we look to the future, there are so many gains to be had from integration. And as well, we think it can help expand the TAM by making the value proposition of having technology integrated into the helmet not attached to the outside of the helmet can be TAM expanding and its ability to be more appealing to more motorcyclists that otherwise wouldn't want to necessarily have these attachments. So it's a little bit of both, but as I mentioned, we've got a really strong reputation in -- across all of motorsports. So -- and given Foresight's expertise with the motorcycle market, it's also the biggest market it aligns really well for that to be our start with tech-enabled helmets. But we see the opportunity over time being bigger than just motorcycles. But we're going to learn first in the motorcycle market, capitalize on foresights experience, capitalized on our existing brand strength. And as I mentioned, the growing retail network that we're establishing to sell our existing line of cameras will also benefit us at the time of launch of our first helmets in 2025.
Our next question is from Martin Yang with Oppenheimer.
My first question is our subscribers. How do you see your long-term growth for this [ trigger ] base as you have more multiyear renewed users in the subscriber base, do you expect the long-term rate to go maybe at above mid-single digits? And also, how should we think about beyond subscriber user growth, but ARR for our subscription revenues, do they have a different growth rate relative to subscriber base?
Martin, it's Brian. First, we're seeing ARPU improvements of about 5%. So that's great. We are also seeing the total subscribers in your drive the ARPU. And as you see, we're continuing on each successive year to retain more and more subscribers, which is great. The growth is largely going to be tied into unit growth over time. right? So that's a key kind of metric, I think, for the subscription business. We gave a range of 2.5 million to 2.6 million subs this year. if we continue with ARPU and growth, it could actually go beyond 2.6 million, so you could see more growth. We've kind of held it back a little bit maybe to be conservative there. So hopefully, that helps answer your question.
Got it. And then a quick following up on mix comments on the 2025 product for helmets, can you clarify if that's a helmet of branded by GoPro made still entirely by Foresight or with -- it's a different product with GoPro's own hardware in it.
As we shared, we're going to be launching our own line of GoPro-branded helmets. And after the acquisition, foresight will be part of GoPro, so it will be GoPro designed and manufactured helmets. And then we also are intending to support other leading helmet brands who wish to tech enable their helmets as well serving as a technical OEM supplier to them. brand counts for a lot in every industry. And we're looking to leverage our brand to help establish a new bar for performance, convenience, value, safety, in tech-enabled helmets and then use that to then help drive the industry forward with the support of other leading brands that want to do the same.
Got it. My last question is on gross margin outlook for '24. Last quarter, we provided a breakdown of different components and source of improvement for margin expansion in '24. Do you still believe those key components are the same as you guided before, if there's any changes, what are they?
The other thing, Martin, we have the introduction of our new lower product cost entry-level product in Q2, which is in our management commentary. We have reduced price protection year-over-year, about $30-some million. We do have identified product cost and tariff savings and the tariff savings might be new and there we didn't have that last time. The team has done a good job with that. subscription growth and other improvements. There is a potential offset in there that we've factored in, which is we're seeing potential increases in memory pricing later this year. So that can be something that could impact us that we've tried to reflect in our numbers if that helps.
We have no additional questions, so I will pass the conference back to the management team for any closing remarks.
Thank you, operator, and thank you, everybody, for joining today's call. As we mentioned, we're excited to be growing in retail in an effort to expand our TAM, and we believe we can drive long-term revenue, profit and margin growth with our expanded product line and increased marketing activities planned for the rest of the year, combined with our steady addition of more retail doors, targeting 7,000 additional doors over the next 2 years. lots to be excited about. And as I mentioned, it's good to be on the build again at GoPro. Thank you, everyone. This is team GoPro signing off.
That concludes today's call. Thank you all for your participation. You may now disconnect your lines.