GoPro surges after job cuts bring elusive profit goal closer

GoPro Inc. shares rose the most in almost a year after the action-camera maker unveiled a second round of job cuts that get it closer to an elusive goal of making a profit.

Shares jumped 13 percent to $8.29 at 1:49 p.m. in New York after earlier surging as much as 18 percent. The company said late Wednesday it’s eliminating about 270 full-time and open positions. In November, it chopped 15 percent of its workforce and shut down its entertainment division. GoPro had 1,552 employees at the end of 2016, according to a regulatory filing.

Revenue stabilization and the second round of job cuts means GoPro is likely to become profitable this year, rather than in 2019, reducing the chance it will have to tap its credit facility, Citigroup Global Markets Inc. analyst Stanley Kovler wrote in a note to investors. The news should “stave off the bear scenario for a few quarters,” he added, raising his rating on the stock to neutral from sell.

Brad Erickson, an analyst at Pacific Crest Securities LLC, said GoPro’s announcements were probably aimed at short-sellers, or investors who are betting against the company. Cost cuts preserve significantly more cash than previously expected but raise questions about GoPro’s ability to create compelling new products, he said.

The number of GoPro shares being borrowed and sold by short sellers equals more than 36 percent of its publicly traded stock. The average for U.S. equities is 2.5 percent, according to data compiled by Bloomberg. When shares rise, short sellers often buy back stock to limit losses, accentuating the move.

GoPro has gone from a high-flying gadget maker with digital media potential to a bloated company being undercut by cheaper Asian rivals. It reported disappointing earnings last quarter, was forced to recall its Karma drone in November, and was hit with production delays that dented sales. CJ Prober, who became Chief Operating Officer in January, vowed to keep costs in check, make GoPro cameras easier to use, and chase international growth.

“We’re trying to do fewer things better,” Prober said in an interview on Wednesday. “We went team by team and did detailed budget and organizational reviews. That fed into a series of decisions that let us get to that operating expenses number.”

Roles were cut throughout the organization, he said. The company is ridding itself of “distractions,” like the entertainment unit, and tightening team structures, he added. GoPro shrank its video production team to focus more on user-generated content and less on GoPro-created videos. The San Mateo, California-based company also merged teams internationally where there were duplicate roles across regions. Prober said the cuts will not impact the company’s product road map.

Lower Expenses
The latest cuts are expected to reduce full-year adjusted operating expenses to less than $495 million. That’s about 18 percent below the company’s previous projection of $600 million. It also forecast first-quarter revenue toward the upper end of its guidance range of $190 million to $210 million and said it expects to make a profit this year, before interest, tax, depreciation and amortization.

The stock’s jump Thursday was the biggest intraday gain since April 2016. It’s still down more than 60 percent from its 2014 initial public offering price.