GoPro 4Q14 - Resetting Expectations [revised]

GoPro had great 4Q results and 1Q guidance, but the market seems skeptical, the stock was down over 10% the second day. So what happened? The COO is going away (mostly probably fired) and 1Q guidance is not beating consensus in the same epic proportion as 4Q14. I don't believe her exit would cause any material damage to the company. Her background is easily overshadowed by the high-profile recruits in 2014: Anthony Bates (Skype), Jack Lazard (Qualcomm), Peter Gotcher (Dolby), Zander Lurie (CBS), all rock stars on paper, probably all very expensive. Anthony Bates, for example, owns over 520k GPRO shares, according to GPRO’s secondary offering filing. 

I think GPRO today is like a kidult with bit of identity crisis. On the one hand, you have the marketing-oriented, headline-making, viral-video-worthy CEO Nick Woodman, and on other hand, you have a $6B-market-cap technology company led by managers and board members with deep experience in the "old guard" tech. Today, over 50% of the company is owned by the Woodman family. It seems that the kid side is still dominating, based on GPRO’s new marketing campaigns (new videos like Life in 4K), more flashy in-store display, and overall a strong emphasis on social media and viral videos. 

But 4Q earnings call gave us a good picture of the adult side of GPRO creeping up from the shadow of its CEO. On the call, the CFO (Jack) and President (Anthony) are making an effort to reset the expectation of investors in two ways: 1) making it very clear that its media strategy does not involve making a lot of money ("not a priority"), and 2) 1Q guidance tells Wall Street analysts that their expectation is too high and they should reconsider the margin and growth outlook for 2015. 

2015 is a critical year for GoPro. The company needs to rebuild itself from the ground up. It needs a new camera with sufficient differentiating features from competition without the haunting downside issues (overheating, short battery life). It also needs to revamp its camera interface, smartphone app, and editing tools. If GoPro cannot outdo itself in 2015, competition and the shrinking market of digital camera/camcorder will quickly wipe out its growth to low double digit, or even to zero.

The biggest risk in 2015 is the lack of clarity in strategy. GoPro never puts product on top priority. It want to facilitate great video experience of its users, and yet the GoPro experience never extends beyond its waterproof casing. Much of the viral videos are edited using professional software and by video professionals. GoPro is not known for the elegance of its software. The media strategy left a good first impression on investors, but it was premature when announced without clarified path to monetization. As a consumer electronics company, GoPro needs to put product first, then improve the total experience around the hardware. 

For consumer electronics, product and timing is everything. GPRO’s past glory is a clear example of nailing these two factors. But the GPRO today is beginning to lose control of both. For GPRO to succeed going forward, the CEO’s skill set looks a bit unfitting and he is probably more suitable for a CMO and advisor/evangelist role.