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GoPro Fires 200-300 Employees, Mostly in its Drone Division

It seems that GoPro, Inc. GPRO has begun 2018 with a round of layoffs. Per a report by the tech news site — TechCrunch — GoPro has laid off nearly 200-300 workers, largely in its Karma drone business division.

The report refers to an internal letter of the company which noted that the job cuts were necessary "to better align our resources with business requirements." Per the report, the employees were let go last Thursday, but will be kept on the company’s payroll until mid-February, which is when we expect GoPro to announce its next earnings report.

The job cuts underscore GoPro's ongoing struggle to turn around its ailing business after multiple turbulent years. In its efforts to expand beyond the core video camera business, GoPro tried its hand at running a media and entertainment unit, and making drones. However, those efforts failed to yield success, forcing the company to shutter its media business and implement several rounds of layoffs. The company actually fired 370 employees in late 2016 and early 2017.

Investors were particularly hopeful that the Karma drone would boost GoPro's sales, but the initiative encountered snags right from the beginning. The company was forced to pull the Karma off the market within 16 days of its release, after reports surfaced of the drones losing power mid-flight and falling from the sky. Karma was re-released in February 2017.

While GoPro has not made the news about the job cuts or its impact on the company’s Karma drone business public yet, hacking such a workforce could be viewed as a possible retreat from something that was once seen as a great growth avenue.

After several negative quarterly reports and multiple rounds of layoffs, GoPro seemed to be getting back on track, of late. In the company’s third-quarter 2017 results, released in November, GoPro turned in a profit of 15 cents per share on revenues of $329.8 million compared with a loss of 60 cents a share, on $240.6 million in sales reported in the prior-year period.

Nevertheless, investors have been well guarded about putting GoPro back into their investment plans. The company’s shares have lost 17% over the past year, in stark contrast to the industry’s gain of 61.7%.

Investors were clearly disappointed with GoPro’s soft growth projections for the holiday season, which was released along with its third-quarter results.

GoPro has stated that it expects its holiday quarter sales to be subdued, which is curious, given a complete range of product offering and better supply-chain management. Compared to last year’s holiday quarter, this year GoPro ought to benefit from a full holiday season of Karma, two new cameras (GoPro 6 and Fusion 360) and a complete range of complementary accessories. Furthermore, GoPro seems to have solved its supply-chain issues which have plagued the company’s performance in the past.

Despite all these supposed growth catalysts, GoPro estimates its fourth-quarter 2017 revenues to come in at about $470 million (+/- 10 million). This figure represents a 13% contraction from last year's tally and a massive 26% plunge from 2014’s fourth quarter. And GoPro suffered from major supply-chain issues last year that adversely affected the holiday season, which should also be taken into account in year-over-year comparisons.

Projected full-year 2017 results don't look good either, and actually reflect negligible growth when normalized for supply-chain issues and messed-up product launches which supposedly hurt growth. Additionally, a free cash flow shortfall, and continued margin compression are other red flags that cast doubts over GoPro’s growth story.

Evidently, weakness in the holiday season of 2017 would likely spill over to the first half of 2018 as well.

Amid its multiple operational issues, production delays and bungled-up product roll outs, GoPro has lost significant ground to competitors like Sony Corporation SNE, Garmin Ltd. GRMN and Nikon Corporation NINOY, which could be another nail in the coffin for this action-camera maker.

GoPro currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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