Can GoPro Stay in Business as It Burns Cash? Can Investors Believe Management?

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GoPro Inc. (NASDAQ: GPRO) posted a huge drop in its cash position last quarter, along with a massive operating loss. If the company cannot quickly turn around its fortunes, management will need to worry about the size of its savings account.

For the period that ended September 30, GoPro had $131 million in cash and $93 million in marketable securities. In the same period a year ago, it had $280 million in cash and $194 million in marketable securities. GoPro’s operating loss for the quarter was $116 million. The company bought Splice in February for $105 million. Most certainly, with a falling cash balance, GoPro cannot buy itself revenue.

GoPro’s forward statements are not believable, in light of its recent performance, and management’s ability to forecast. It is also essentially a one-product company, and that product does not sell very well.

GoPro’s forecast:

Fourth Quarter 2016

Revenue of $625 million +/- $25 million
GAAP and non-GAAP gross margin of 40% +/- 1%
GAAP diluted earnings per share of $0.15 +/- $0.05
Non-GAAP diluted earnings per share of $0.30 +/- $0.05
GAAP and non-GAAP tax rate of 12%
Fully-diluted share count of approximately 146 million

Against this, Thomson Reuters estimated $319 million in revenue for the third quarter, while actual revenue was $240 million. Imagine if it continues to miss top-line estimates every quarter for the next several. The cash burn would be terrific.

Shares were down more than 18% to $9.70 in Friday’s premarket. The 52-week trading range is $8.62 to $26.12.