Q4 ER: $GPRO Has Turned Around
Note: if you are new to $GPRO, I suggest you read my deep dive on the company before reading the below.
Narrative Reversion Ahead
Summary: the business is doing great whilst the old narrative is still strong.
For a few years now I have been writing about $GPRO, sharing my thoughts on its turnaround. Per the Q4 results, I believe that the turnaround has materialized and that the company is now on its way to expanding its business. After Q4, it holds 40% of its market cap in cash and pretty much all business metrics are advancing prosperously. FY2021 is also the company´s first profitable year since its notorious decline began in 2014-15.
Most importantly, the stock still trades as if the company were dead, at just 1.26 times sales and a PE ratio of 4.03. The narrative caused by years of decline is strong enough to keep the stock trading very cheaply, regardless of fundamental advances. Throughout 2022, I believe we will a narrative reversion, as the company continues to grow its ability produce free cashflow in an environment of rising rates.
Summary: $GPRO is now on the path to compound its value per share year after year, for the long run.
FY2021 revenue is up 30% YoY to and the subscriber base is up to 1.6m, 107% growth YoY. Although international travel has not come back fully, the company´s top line is making its way back to prepandemic levels, the top line´s most notable component being the subscriber growth.
Below the top line, the company is simply being better managed across the board. In FY2021 this has yielded an unlevered FCF of $153.6m and a net income of $371.2m. Both are dramatically higher than in previous periods and summarize / denote an entire series of qualitative advancements that you can learn about in detail in the deep dive.
Meanwhile, the balance sheet is pristine, with $111.3m in debt and $539m cash in hand. I have been giving much thought about what $GPRO should do with the cash going forward and I reached the conclusion that share buybacks and further investing in $GPRO´s ability to make the life of content creators easier was the way to go. As long as they continue to excel at the latter, they will stay in business.
$GPRO has announced a buyback of 100m$, although it will not be 100% subtractive to the share base due to expect employee-related share issuance. It has also announced intentions to:
“Grow our business and expand our TAM by enhancing our product ecosystem, leveraging automation to help our customers more conveniently achieve success; creating derivative cameras to diversify our offerings, targeting TAM expanding use cases in a more specific manner than we do today; and expanding our cloud, mobile and upcoming desktop application capabilities to better serve GoPro customers while appealing to new customers who may or may not own a GoPro camera”.
If they focus on the above, I believe the business will continue to do well and will enable them to keep producing cash year after year. This will allow them to keep buying shares and through time, this will compound the value of each share, with more free cashflow accruing to each one of them.
Fine Details From the Conference Call
I have seen a strong demarcation between Woodman´s and McGee´s roles, that grows with each successive CC. One of the questions in the CC was directly addressed to Woodman, which he deferred to McGee in quite a disciplined way. I like this, because whilst Woodman has the vision, McGee is the man behind the operational and financial turnaround. Nick knows this and him knowing it deeply is core to the long thesis.
Nick talks about doing new things at $GPRO, but he emphasizes two things multiple times in the CC:
New things will be based on research and on a clear understanding of what it is customers want / how much they would pay for it.
They will be brought to life synergistically based on $GPRO´s existing platform.
Both components are key for the company to experiment with new TAM expanding activities whilst protecting its ability to produce cash and stay lean. Below, the evidence.
Proceeding in this manner I think will have $GPRO producing even more cash very soon. I think the company is set up for success not just for 2022, but for the long term, as content continues to be of growing relevance in the world and $GPRO continues to provide content creators with the best possible tools.
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