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GoPro in 2017: Will Its Turnaround Strategy Restore Profitability?"

Step 3 Internal Company Analysis, VRIN test, Value Chain Analysis, Financial Analysis, and Competitive Strength Assessment Chart: Use these four theories to look at the internal workings of the company in areas such as marketing, production, managerial competence, financial performance, and other factors underlying the organization's strategic successes and failures. Decide whether the firm has valuable resource strengths and competencies and, if so, whether it is capitalizing on them. Identify what are the companies key strengths and in which areas they need to improve. 

 

Step 4 Synthesize, SWOT: Put together the ideas and results from your analysis into a comprehensive SWOT analysis.

GoPro_in_2017.pdf

GoPro_in_2017.pdf
case Final PDF to printer 7 GoPro in 2017: Will Its
Turnaround Strategy
Restore Profitability?
DAVID L. TURNIPSEED  University of South Alabama
JOHN E. GAMBLE  Texas A&M University–Corpus Christi GoPro had been among the best examples of how
a company could create a new market based upon
product innovations that customers understood and
demanded. However, by late-2015, the action camera
product niche appeared saturated. The company had
grown from a humble beginning as a homemade camera tether and plastic case vendor in 2004 to an action
camera vendor with $350,000 in sales in 2005 (its first
full year of operation) to a global seller of consumer
electronics with revenue of $1.6 billion in 2015. The
company’s shares had traded as high as $98 in October
2014, just months after its initial public offering (IPO)
in June 2014. In 2014, GoPro was ranked number
one most popular brand on YouTube with more than
640 million views, and an average of 845,000 views daily.
In 2015, average daily views were up to 1.01 million. Abruptly, in the third quarter of 2015, GoPro’s
magic disappeared and, by the fourth quarter of
2015, its revenues dropped by 31 percent from
the prior year. In addition, its net income fell by
128 percent to a net loss of $34.5 million. By the end
of December 2015, the stock traded at less than $20.
The plummet continued, and by the end of December 2016, revenues had dropped another 27 percent
to $1.2 billion from $1.6 billion in 2015. In addition,
the company recorded a net loss of $419 million
in fiscal 2016, helping drive its share price to less
than $9.00 in December 2016. A summary of the
company’s financial performance for 2011 through
2016 is presented in Exhibit 1. The performance of
GoPro’s shares from June 2014 through July 2017 is
presented in Exhibit 2. gam27636_case07_307-321.indd 307 The company launched a turnaround plan in
early 2017 to reverse its decline, with its first quarter
sales in 2017 increasing by 19 percent from the first
quarter 2016 and its operating expenses declining by
$50 million. Its adjusted EBITDA improved from
a $87 million loss in the first quarter of 2016 to a
$46 million loss in the first quarter of 2017. The
improvement was driven by a trade-up program that
provided GoPro owners with $100 off a HERO5
Black or $50 off a HERO5 Session when they traded
in a previous generation GoPro camera and growth
in international markets. The HERO5 Black was the
best-selling digital image camera in the United States
in the first quarter of 2017 and GoPro’s drone Karma
with the HERO5 camera was the number-two selling
drone priced over $1,000 in the United States. During first quarter of 2017, 60 percent of the company’s
revenue was generated outside the United States and
between 70 percent and 90 percent of GoPro camera
users in international markets used cameras in their
local language. In addition, its Quik mobile video
editing app had been installed 5.2 million times in the
first quarter of 2017 and its active users had increased
by 160 percent from the same period in 2016.
Although the first quarter offered promising signs
of a turnaround, it was far too early to know if the first
quarter 2017 improvement was sustainable. Many
investors and industry observers viewed the action
camera market as an overly saturated niche. In fact, the
first quarter improvement in financial performance
© Copyright 2017 David L. Turnipseed and John E. Gamble. All rights
reserved. 01/12/18 08:59 PM Final PDF to printer 308  Part 2 Cases in Crafting and Executing Strategy EXHIBIT 1 Financial Summary for GoPro, Inc., 2011–2016 (in thousands, except per share
amounts)
Consolidated statements
of operations data:
Revenue
Gross profit
Gross margin
Operating income
Net income 2016
$1,185,481
461,920
39.0%
(372,969)
(419,003) Net income per share:
Basic
Diluted $(3.01)
$(3.01) 2015
$ 1,619,971
673,214
41.6%
54,748
36,131
$0.27
$0.25 2014
$1,394,205
627,235
45.0%
187,035
128,088
$1.07
$0.92 2013
$ 985,737
361,784
36.7%
98,703
60,578
$0.54
$0.47 2012
$ 526,016
227,486
43.2%
53,617
32,262
$0.07
$0.07 2011
$234,238
122,555
52.3%
38,779
24,612
$0.26
$0.24 Source: GoPro, Inc., 2016 10-K. GoPro’s Stock Performance, June 2014–July 2017 J J A S O N D 15 F H A M J J A S O N D 16 F M A M J J
Year had yet to reverse the company’s downward trend in
its stock price performance as of mid-2017. Company History
GoPro began as the result of business failures.
GoPro’s founder, Nick Woodman, grew up in Silicon
Valley, the son of wealthy parents (his father brokered the purchase of Taco Bell by Pepsi). Woodman
started an online electronics store, EmpowerAll.com, gam27636_case07_307-321.indd 308 $100
90
80
70
60
50
40
30
20
10
0 Price EXHIBIT 2 which failed, and subsequently started an online gaming service, Funbug, that failed in the dot-com crash
of 2001, costing investors $3.9 million. Woodman
consoled himself after the failure of Funbug with an
extended surfing vacation in Indonesia and Australia.
While on vacation, he fashioned a wrist strap from a
broken surfboard leash and rubber bands to attach a
disposable Kodak camera to his wrist while on the
water. Woodman’s friend and current GoPro creative
director, Brad Schmidt, joined the vacation, worked 01/12/18 08:59 PM Final PDF to printer Case 7  GoPro in 2017: Will Its Turnaround Strategy Restore Profitability?   309 with the camera strap, and observed that Woodman
needed a camera that could withstand the sea.
After his vacation, Woodman returned home and
focused on developing a comprehensive camera, casing, and strap package for surfers. Originally incorporated as Woodman Labs, the company began
doing business in 2004 as GoPro. Woodman found
a 35-mm camera made in China that cost $3.05,
and sent his homemade plastic case and $5,000 to
an unknown company, Hotax. A few months later,
Woodman received his renderings and a 3-D model
from the company, and sold his first GoPro camera
in September 2004, at an action-sports trade show.
Also that year, GoPro hired its first employee, Neil
Dana, who was Woodman’s college roommate.
The two-man company grossed $350,000 in 2005,
the first full year of operation. Woodman wanted
to keep the company private as long as possible: he
invested $30,000 personally, his mother contributed
$35,000, and his father added $200,000. In a fortunate coincidence for GoPro, in fall 2006 Google
purchased a then-small company, YouTube, and in
spring 2007 the GoPro HERO3 with VGA video was
launched. According to Woodman, the competing
name-brand cameras available at the time did not
have good video quality. The combination of GoPro’s
HERO3 video quality and the increasing popularity
of YouTube caused GoPro’s sales to triple in 2007.
In 2007, although the company had revenues in
the low seven figures, Woodman began to question
his ability to take the firm further. He negotiated a
deal to turn the company over to a group of outside
investors, but before the deal was finalized (which
was at the beginning of the 2008 financial crisis), the
investors wanted to lower the valuation of the company. GoPro was profitable, and Woodman did not
believe that the company was having any ill effects
from the economy. He refused to negotiate the company’s value down, and the company’s sales were
over $8 million that year. The company’s growth continued and in 2010, Best Buy began carrying GoPro
products, which was a clear indication that the company was accepted in the market.
In May 2011, GoPro received $88 million in
investments from five venture capital firms (including Steamboat Ventures—Disney’s venture capital gam27636_case07_307-321.indd 309 company) which enabled Woodman, his family,
and some GoPro executives to take cash from the
company. Also in 2011, GoPro acquired CineForm,
a small company that had developed a proprietary
codex that quickly and easily converted digital video
files among different formats. CineForm had used
this codex in several movies including Need for Speed
and Slumdog Millionaire. As part of GoPro, CineForm altered its 3-D footage tool into an editing
program that became the company’s first desktop
application, GoPro Studio.
In December 2012 a Taiwanese manufacturing
company, Foxconn (trading as Hone Hai Precision
Industry Co.), bought 8.8 percent of GoPro for
$200 million, which brought the value of the privately held company to about $2.25 billion, and
Forbes reported Woodman’s personal net worth to be
about $1.73 billion. GoPro sold 2.3 million cameras
and grossed $531 million in 2012; and in December
of that year, GoPro replaced Sony as the highest-­
selling camera brand at Best Buy.
Sales of GoPro cameras at snow-sports retailers
increased by 50 percent for the 2012–2013 ski season. GoPro almost doubled its revenues in each of
three consecutive years, from $234.2 million in
2011, to $525 million in 2012, and $985 million in
2013, according to the U.S. Securities and Exchange
Commission (SEC). Although revenues increased
87 percent in 2013, in that year the decrease in revenue growth became obvious. According to its IPO
filing, as of December 2013 the company had not
derived any revenue from the distribution of its content on the GoPro Network; however, it announced
plans to pursue new streams of revenue from the
distribution of GoPro content. GoPro formed a
new software division in 2013. Also in that year, the
National Academy of Television Arts and Sciences
recognized the company with a Technology and
Engineering Emmy Award in the Inexpensive Small
Rugged HD Camera category.
In June 2014, GoPro went public at an IPO price
of $24.00 which valued the company at $2.7 billion.
The IPO included a lockup agreement that prevented
the Woodmans from selling any shares of GoPro
stock for six months; four months later on October 2,
2014, the Woodmans made a donation of 5.8 million 01/12/18 08:59 PM Final PDF to printer 310  Part 2 Cases in Crafting and Executing Strategy shares of GoPro stock into the Jill and Nick Woodman Foundation. A press release about the foundation stated that details about its mission would be
announced at a later date, according to CNN. Share
prices dropped 14 percent after the announcement
and angered investors. Also, GoPro failed to meet
investors’ expectations when it released its first earnings report in August 2014.
GoPro increased emphasis on software and video
sharing in 2015. In that year, GoPro tied with Apple
on the Google Brand Leaderboard, which measures
the most popular brands on YouTube. According to
Google, more than 4.6 years of content was uploaded
to YouTube in 2015 with GoPro in the title, an increase
of 22 percent from 2014. Also in 2015, the company
launched the GoPro Channel on Amazon Fire TV
and Fire TV Stick with a custom-designed streaming
channel that was a one-stop destination for delivering
on-demand GoPro videos to Amazon customers.
Another 2015 development was the GoPro Channel on the PlayStation Network which allowed PlayStation owners to stream GoPro content on-demand, and
browse GoPro cameras and accessories. PlayStation
joined GoPro’s growing roster of distribution partners
including Amazon Fire TV, Roku, Comcast Watchable, Sky, Vessel Entertainment, Xbox, LG, and Virgin
America. The GoPro Mobile App was downloaded
2.75 million times in the fourth quarter, totaling
almost 24 million cumulative downloads; Q4 installs
of GoPro Studio totaled nearly 1.7 ­million, totaling
over 15 million cumulative installs, with average daily
video exports of over 49,000 in the fourth quarter.
GoPro purchased Kolor, a French company
with experience making software for capturing
and displaying virtual reality in 2016, and acquired
Replay and Splice, two leading mobile video editing apps. Replay was video editing software that
GoPro rebranded as Quik, and Splice was an app
that promised desktop-level performance for editing
video on an iPhone. The Kolor group assisted in the
launch of a virtual reality social media platform that
functioned both on the web and as an app. According to The Verge (June 2, 2016), Woodman understood that “the hardware-first chapter of GoPro”
was coming to the end. He recognized that market
saturation had created the problem, explaining it
as “content guilt.” According to Woodman, “Most gam27636_case07_307-321.indd 310 people don’t even watch their GoPro footage.” He
blamed the company for creating the problem by
solving the capture side but leaving customers hanging in postproduction.
In April 2016, the investment bank Piper Jaffray
reported that GoPro was gaining market share in
a declining market, and that action camera ownership declined to 28 percent among teenage consumers, down from 31 percent a year previous, and
40 ­percent in 2013. This trend clearly indicated the
need for GoPro to transform into something more
than an action camera company. The GoPro brand
and reputation had been made as a hardware company, and moving that reputation to a new market
(i.e., software) would be difficult. Although GoPro
created the market for wearable cameras, it found the
content-creation software field crowded. Plus, The
Verge (June 2, 2016) pointed out that the company
had no clear way to monetize its software. According to Woodman, building the software team had
been the most time-consuming project the company
had undertaken. He believed that the benefits of
success would be large because the amount of video
being consumed was huge, and the market research
company NPD Group reported that more than
80 ­percent of smartphone users stream video.
Woodman also believed in the potential of Karma,
GoPro’s camera drone, scheduled for release in
early 2016.
GoPro’s third quarter 2016 performance produced
large losses, with Woodman firing 15 percent of his
workforce. The company’s president, Tony Bates,
announced plans to leave the company at year end
after little more than two years with the company.
The Karma drone, which had been postponed several
times, was eventually released in November 2016.
Problems quickly became apparent with the drone—
it stopped flying and crashed—that required GoPro
to issue a recall and discontinue selling the product
until February 2017. Shortly after sales resumed,
Woodman claimed that the drone was “exceeding
our expectations” (Fortune, April 27, 2017). However,
GoPro CFO, Brian McGee, said that the bulk of
Karma’s sales had come from being bundled with the
HERO5 camera. According to McGee, GoPro made
more money from the sale of a camera than from the
sale of a drone. 01/12/18 08:59 PM Final PDF to printer Case 7  GoPro in 2017: Will Its Turnaround Strategy Restore Profitability?   311 In early 2017, GoPro announced a new 360-degree
camera, Fusion, but provided few details. The company planned a pilot release of Fusion in summer
2017, and a launch with a limited release at the end
of 2017. According to Woodman, professional users
would be the main market for Fusion, which was a
much smaller market than the traditional consumers
that had bought GoPro’s other cameras. The Action Camera Industry
from 2014 to 2017
Sales in the global action camera industry grew
44 percent in 2014, reaching 7.6 million units,
and retail value of $3.2 billion. Camera unit sales
increased by 38 percent in North America in 2014.
However, the largest growth came from the Asia
Pacific region, which was up by 114 percent. Sales
of action cameras worldwide reached 10.5 million
in 2017, up from 8.4 million in 2015. Although the
action camera market was expected to enjoy continued sales growth through at least 2019, several factors, including lengthening replacement cycles, were
expected to slow the growth rate.
Consumer sales, primarily for extreme sports,
had accounted for the largest part of global demand
up to mid-2015, but professional sales, primarily
driven by TV production, security, and law enforcement, were expected to increase. In 2014, consumers were responsible for 86 percent of action camera
sales, with the remainder coming from professional
uses. Although GoPro dominated the action camera industry in mid-2015, there was increased
­competition from other companies, including Garmin, TomTom, Canon, JVC, Ion America, Polaroid,
and Sony. Other competitors were focusing on the
adjacent market of wearable cameras for security
and police officers.
A defining characteristic of the action camera
industry in 2015 was the increase in the number of
competitors. In early 2015, the market was experiencing rapid growth and attracted many new entrants,
which had the expected effect on price (lower), quality (higher), and features (more). A list of producers of action cameras in June 2017 is presented in
Exhibit 3. gam27636_case07_307-321.indd 311 EXHIBIT 3 Action Camera Producers, June 2017
Key Brands
Drift Innovation
Garmin
GoPro Rollei
Sony
iON
Other Brands Contour
Braun
Sjcam
Chilli Technology
Decathlon
HTC Amkov
Casio
JVC Kenwood
Ricoh
Panasonic
Ordro Polaroid
Xiaomi
Kodak
Toshiba
Veho Source: Market Publishers Report Database, June 2017. Another 2015 industry trend was price polarization. Sales of low-end camera models priced under
$200.00 and high-end models (including GoPro’s
$499.00 HERO4 Black) experienced increasing
growth. The action camera industry experienced
significant change in early 2015. A Futuresource
analyst reported that the 360-degree capture that
had recently become available would drive virtual
reality applications over the coming months, especially for sports broadcasting. The company envisioned the percentage of 360-degree video action
cameras growing from 1 percent in 2015 to 14 percent by 2019. In 2014, 95 percent of action cameras sold could take high-definition video with at
least 720p resolution, and approximately 85 percent
of action cameras could take HD video in 1080p.
About half of cameras sold could record video in
ultra-high-­definition 2160p, or 4K.
In 2016, the action camera industry experienced
adjustments in usage: The demand for action cameras for professional applications had grown exponentially due to the focus on better viewing of sports
events. Action cameras were increasingly being used
for TV production and to record closer details of
sports. The National Hockey League and Fishing
League Worldwide had signed major contracts with
iON, GoPro, and other vendors, and that professional segment of the industry was expected to have 01/12/18 08:59 PM Final PDF to printer 312  Part 2 Cases in Crafting and Executing Strategy a high growth rate. Also, Global Market Insights
pointed out increasing popularity of action cameras
among all age groups and advanced product features
as other factors providing massive growth potential.
The security industry was also finding increasing
usage for action cameras in 2016, which added more
fuel to the industry growth. Action cameras and especially drone-mounted action cameras were expected
to be used increasingly in security applications globally. A leading vendor in the action camera–drones,
Lifeline Response, had developed a smartphone app
that could fly a drone to a needed location in emergencies. According to Technavio Research, professional use of action cameras would exceed casual
usage by 2020.
In addition to increased demand for action cameras for professional applications, the industry was
expanding also due to demand from developing
countries, with the largest growth in the Asia Pacific
region. Increasing disposable income, an increase
in social networking, and rapid growth in adventure sport tourism were factors increasing sales in
emerging countries. Several action camera vendors
sponsored extreme sporting events in various emerging economies to promote their camera brands.
Although European growth was predicted to be
stable from 2016 to 2023, the global action camera
market was projected to grow at an annual rate of
14.6 percent between 2017 and 2021.
The revenue growth rate in the action camera
industry was expected to be lower than the growth
rate in unit sales, due to a general price decline. The
average action camera price is expected to decline
to $226.00 by 2020, depressed primarily by a global
increase in supply. In the first quarter 2016, Technavio forecast that the value, by revenue, of the global
action camera industry, which was $2.35 ­billion
in 2015, was expected to reach about $6 billion by
2020. However, young consumers were increasingly
choosing smartphone cameras over traditional,
which meant they were less likely to purchase an
action camera.
The popularity of social networking sites was a
major driver of the action camera industry in 2017
and price polarization continued as a crucial trend.
Vendors began “bundling” their products (cameras gam27636_case07_307-321.indd 312 and numerous accessories) to increase demand for
cameras and accessories. Bundle packaging increased
demand by offering cost-effectiveness to customers because the bundling reduced or eliminated the
need to purchase additional equipment. Other industry trends in 2017 were increasing numbers of new
entrants, which reduced prices, and increasing significance of the smartphone with enhanced quality and
features which depressed demand. The saturation
of the action camera market niche and the declining prices contributed to the June 2017 bankruptcy
filing of iON Worldwide, a major competitor in the
industry. The Drone Industry in 2017
According to Gartner, the personal and commercial
drone industry as measured by revenue increased
by 35.6 percent between 2015 and 2016 to reach
$4.5 billion. Gartner projected industry revenue to
increase an additional 34.3 percent between 2016
and 2017. Unit shipments in the industry increased
by 60.3 percent in 2016 when compared to 2015 shipments and was projected to increase by 39.0 percent
between 2016 and 2017. The industry was expected to
grow to $11 billion in revenues by 2021.
The majority of personal drones were purchased
for video and photography, while commercial drones
tended to be used for geographic information system (GIS) mapping or delivery. The civilian drone
fleet was expected to grow from approximately one
­million in 2016 to more than 3.5 million by 2011,
while the commercial drone fleet to increase from
about 40,000 units in 2016 to 420,000 in 2021.
FAA regulations in 2017 limited commercial
drones to a select few industries and uses such as aerial surveying in the agriculture, mining, and oil and
gas sectors. However, emerging technologies such as
­collision avoidance and geo-fencing would make drone
flying safer, and make regulators feel more comfortable with larger numbers of drones taking to the skies.
The military sector was expected to continue to lead
all other sectors in drone spending through 2024, due
to the high cost of military drones and the increasing
number of countries seeking to acquire them. 01/12/18 08:59 PM Final PDF to printer Case 7  GoPro in 2017: Will Its Turnaround Strategy Restore Profitability?   313 While holiday sales of drones priced $50 to $100
helped drive unit sales, drones priced over $300
accounted for 84 percent of industry revenues and
40 percent of unit volume sales between 2016 and
early 2017. Drones with premium features such as
autopilot capabilities sold nearly five times more
quickly than basic feature drones. Among the most
popular drone features was autopilot functionality
that allowed the drone to follow the user, with sales
of such devices selling 19 times more quickly than
entry-level drones. The average sales price for a
drone was more than $550 in April, which gave them
one of the highest average retail prices of all technology categories.
Several of the prominent early drone manufacturers were emerging from outside the U.S. market. Among the foreign manufacturers were the
Canadian firm Aeryon, Switzerland-based senseFly
(owned by France-based Parrot), publicly traded
Swedish firm CybAero, Shenzhen, China-based DJI,
and Korea-based Gryphon. DJI had become the
number-one selling drone brand through its commitment to innovation and partnerships with Sony for
camera components and Apple for distribution in
Apple Stores. Parrot abandoned drone manufacturing in mid-2017 to focus on drone software. Exhibit
4 presents the drone industry’s leading brands in
units sold in April 2017. EXHIBIT 4 Top-Selling Drone Brands Ranked
by Percentage of Shipments, April 2017
Rank
1
2
3
4 Brand Name
DJI
3D Robotics
Parrot
Yuneec
Others
Total Market Share 36% 19% 7% 7% 31%
100% Source: The NPD Group/Retail Tracking Service, 12 months ending April 2017. gam27636_case07_307-321.indd 313 GoPro’s Business Model
and Strategy
The action camera industry was a relatively young
and evolving industry, and GoPro evolved within
the industry. Although the company began as an
action camera company, it had rapidly evolved into
a diversified lifestyle company. The company’s business focus, as set out in its 2015 annual report, was to
develop product solutions that enabled consumers to
capture, manage, share, and enjoy some of the most
important moments...
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