GOPRO 3000 Clearview Way Bldg. E San Mateo, California 94402 4/27/2016 CEO/Executive Team GoPro 3000 Clearview Way Bldg. E San Mateo, California 94402 Dear Shareholders, 2015 was a year where GoPro faced a lot of challenges while new competition entered the market. We realize GoPro did not grow last year and our share price has been in steady decline. However, in these tough times, our management team has been diligent in creating future initiatives that we believe will be able to weather our current position and eventually grow into the company we know we are. Our management team realizes that our identity needs to be more than cameras. It needs to be more than action-sports. Fortunately, our brand is still the strongest in the market and that is a very beneficial strategic advantage. Our plan for the future requires smart strategic decisions to reinvest into product development, talent acquisition, and company acquisition. The decline in our sales and net income from 2014 -2015 is of concern to our company and the growth we expect. We declined 31% in revenues which impacted the net income to be our first net loss. However, with excess cash, we are looking into the long-term investment of our research and development team to assist in recapturing the innovative spirit which founded this company. We will use our strong brand awareness and market presence to expand beyond action-based cameras and into the ever-growing market of content creation. We will show that our cameras are the most versatile cameras on the market to create and share content. We will give our creative customer base the best and easiest to use technologies to allow them to create innovative art and then provide them a platform to showcase it. The marketplace for high definition cameras has grown substantially, where smartphone durability and technology makes it easier for taking pictures or videos. We acknowledge this competition and will continue to invest in both GoPro high definition cameras and the GoPro experience for our customers. Over the next 24 months, GoPro will continue heavy investment in research and development for both the hardware and software spaces aided by strategic acquisitions and top talent as a means to begin to build more original content. In addition, we will be building strategic partnerships and joint ventures to generate original content to build brand awareness outside of action sports enthusiasts.
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GOPRO
3000 Clearview Way Bldg. E San Mateo, California 94402
4/27/2016
CEO/Executive Team GoPro 3000 Clearview Way Bldg. E San Mateo, California 94402
Dear Shareholders,
2015 was a year where GoPro faced a lot of challenges while new competition entered the market. We realize GoPro did not grow last year and our share price has been in steady decline. However, in these tough times, our management team has been diligent in creating future initiatives that we believe will be able to weather our current position and eventually grow into the company we know we are. Our management team realizes that our identity needs to be more than cameras. It needs to be more than action-sports. Fortunately, our brand is still the strongest in the market and that is a very beneficial strategic advantage. Our plan for the future requires smart strategic decisions to reinvest into product development, talent acquisition, and company acquisition.
The decline in our sales and net income from 2014 -2015 is of concern to our company and the growth we expect. We declined 31% in revenues which impacted the net income to be our first net loss. However, with excess cash, we are looking into the long-term investment of our research and development team to assist in recapturing the innovative spirit which founded this company. We will use our strong brand awareness and market presence to expand beyond action-based cameras and into the ever-growing market of content creation. We will show that our cameras are the most versatile cameras on the market to create and share content. We will give our creative customer base the best and easiest to use technologies to allow them to create innovative art and then provide them a platform to showcase it.
The marketplace for high definition cameras has grown substantially, where smartphone durability and technology makes it easier for taking pictures or videos. We acknowledge this competition and will continue to invest in both GoPro high definition cameras and the GoPro experience for our customers.
Over the next 24 months, GoPro will continue heavy investment in research and development for both the hardware and software spaces aided by strategic acquisitions and top talent as a means to begin to build more original content. In addition, we will be building strategic partnerships and joint ventures to generate original content to build brand awareness outside of action sports enthusiasts.
April 27, 2016 Page 2
Our team is prepared to execute and complete our objectives to regenerate our identity. While the market remains challenging, we are well prepared to meet our customers’ changing needs, increase our growth and maximize shareholder value.
CEO/Executive Team GoPro
GOPRO
3000 Clearview Way Bldg. E San Mateo, California 94402
4/27/2016
Executive Team GoPro 3000 Clearview Way Bldg. E San Mateo, California 94402
Dear Employees,
Last year, GoPro underperformed the high expectations we set for the company at the beginning of 2015. This underperformance led to a weakening in brand strength and further declines in our stock price. We took a heavy loss in revenues and did not post a profit. Since we are seeing a rapidly changing market, with increased competition and changing technologies, we recognize that the adaptation of our business objectives is necessary to combat the many challenges we face. Failure to change and innovate, will potentially lead to a further erosion of our brand recognition and a continued decline in our stock price.
However, that does not mean we are not planned to get back to where we once were. Our team has planned out our strategic objectives for the next 24 months – and we believe these objectives can be revolutionary for our company. The focus will be a three-pronged approach that results in increasing the value of our brand by increasing our technologies and becoming a leader in user-driven content creation. First, we will put our excess cash reserves into heavy investment for talent acquisition and R&D for software and hardware. To keep up with this fast-changing market, we need top technological talent to quickly align our core products and services with the current environment to continue to be a leader in innovation. In addition, our customers demand an easier way to share the experiences they have captured with our products and create their own shareable content. This must be done by making our software easier and more intuitive to use.
Second, our relationships and partnerships will extend further than to those associated with extreme sports. We are the unquestioned leader in extreme sports camera technology; however, we know the product can be used for so much more. This includes the four major sports (NHL, NFL, NBA, and MLB) and the Professional Golf Association (PGA). Already we have created content with the NHL; however, heavily expanding these types of partnerships will give thousands of new users access to technologies and widen our audience of viewers by millions. We will also partner with those in the
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entertainment industry, truly GoPro has the technology to create art outside of sports, and our partnerships with certain actors and directors will show the full versatility of our product.
Lastly, our efforts will be to create original content and bring it to the customer. Today, you have more consumers live streaming their favorite shows or sporting events from phones, tablets and computers. It’s time for our team to take this to the next level with our own original content as we foster new relationships and turn our company from producing cameras into media production.
The next two years will be challenging, but we have a plan in place that will expand GoPro’s reach. This plan relies on the extraordinary efforts of our employees, and we appreciate all the hard work that has been put into making this company a world-wide brand. Our team will stand with you to help get our brand back to where it was when we first went public.
CEO/Executive Team GoPro
Team GoPro Final Project Spring 2016
Team GoPro - Strategy Analysis Current Situation: As the stock performance is in steady decline since the summer of 2015, GoPro appears to be at a crossroads. The main issue appears to be a crisis of identity, with the main question being -- are we a brand, or simply a product? The Hero camera line, our signature product was extremely successful up until the recent launch of the Hero 4 version. The Hero 4 failed to build upon the successes of previous product lines due to a lack of product differentiation. Only incremental improvements have been made rather than the innovative leaps GoPro customers have become accustomed to in the action sports camera technology. Potential repeat customers see no advantage to upgrading products, and potential first-time customers of the brand see nothing different to draw them into the brand that wasn’t already there with previous versions of the product. Therefore, GoPro is failing to bring in new business at a fast enough rate to drive the growth and revenues that shareholders are seeking. It is imperative for us to increase the value proposition of our product for both the previous customer and potential new user of the brand. Aside from our internal struggles, we are also seeing increased competition in the marketplace. Over the past few years, cell phone durability and camera technology have been steadily increasing, giving those camera types more market share (Exhibit 1), which makes it difficult for GoPro to generate much interest outside of the action sports users who require the ruggedness and versatility of the Hero product line. Within our targeted actions sports users, which appears plateaued (Exhibit 2), our product is no longer unique: Sony, Tom Tom, Lily and others are entering the space at lower prices, with products that offer a different, more user-friendly experience. The difficulties we have faced with the Hero 4, developing new value drivers for the brand, and increased competition in the market have all placed financial stress on GoPro. The company’s initial public offering was completed in the summer of 2014 at just over $30/share, with the stock rising to over $90/share by October of 2014. Since then, it has been seen a steady decline to around $13/share as of April 2016 (Exhibit 3). Looking at our Q4 2015 compared to Q4 2014, we see that our revenue is down 31%, and operating income is down 128%. Additionally, our units shipped went down 16% when comparing these two time periods. These numbers are especially impactful when considering the seasonality of the business and previous strong fourth quarters. All of this translates to investors experiencing a diluted net loss of ($.25)/share for Q4 20151. We now have to balance the short-term expectations of investors each quarter in relation to stock performance with the long-term value generating initiatives of the company. This creates difficult management decisions when considering incremental product improvements on the profitable Hero camera lines versus heavy research and development expenditures into potential new products (software or hardware) and new revenue streams. 1 GoPro, Inc. 2015 10-K Report
Despite the challenges we face, GoPro certainly possesses key assets as a company that will enable us to strategically navigate this difficult environment in the next few years. Our strong brand recognition continues to be our strongest asset and is synonymous with cameras involved in high action activities. Because we were first into this specific market, we have a strong market share, with strong supplier and distributor relationships. Additionally, we are strongly positioned to develop new products and heavily market them. Since going public, we have invested a significant amount of resources into building our research and development product teams and our marketing and sales staff. Even with this heavy strategic spending, we still have significant cash on the balance sheet to look into potential acquisitions or strategic partnerships, with 43% of assets being cash equivalents, per the 2015 10-K. The real question is, where do we go from here? New Strategy: The future of the company is heavily reliant on our strategy over the next 24 months, and hinges on the continued successful deployment of the capital we obtained when going public. The use of this cash and the already acquired resources in research and development, as well as marketing and sales, will be broken-down in the following two initiatives:
1. Continue heavy investment in research and development in both the hardware and software spaces aided by strategic acquisitions and top talent as a means to begin to build more original content
2. Cultivate strategic partnerships and joint ventures to generate original content and build brand awareness outside of action sports enthusiasts.
3. Develop media production capabilities as a means to launch new content into the market in a meaningful way to reinvigorate the brand
These initiatives are also aligned with our already stated strategic goal of increasing international presence. By investing in the above initiatives and utilizing our new resources in sales and marketing, we can develop a synergy across the company that will ultimately drive up brand value, increase product sales, and develop new sources of revenue. Insights: Continued Investment – There are three areas of focus within our continued investment in R&D – software, hardware, and the attraction of top talent across areas of need within the company. These investments are being made to not only continue to build the top product in the actions sports market, but also to lead the charge towards new content development as a means to build brand awareness and build other revenue sources. In the hardware space, it is clear there are new areas of interest in the mobile camera space that we should begin to develop products for, especially in the areas of new housing and mounts, as well as drones. New products that offer a different way to develop content will drive new interest in the brand. Aside from the hardware, it is critical to develop new software that enables these new devices and the Hero line to more easily create meaningful content for the customers. The ability to easily edit and share content from the cameras is the number one priority in the software space. Additionally, to help attract new interest in the brand, we should begin to develop the ability to live stream from
our latest cameras. We have already begun to think about this with our relationship with Telefonica and Periscope. Also in the software space, we need to create a more centralized and meaningful means of sharing user driven content, including the potential exploration of a GoPro channel. These new offerings will create a new and differentiated product base, and could potentially lead to revenue driving original brand content or more lucrative advertising deals. In all of these investment areas it is critical to also consider the ability to acquire smaller hardware or software companies. Given the financial performance of the stock, the fast-moving nature of the business, and our cash situation, the speed at which these items are pursued is also extremely important. Lastly, attracting top talent in terms of product development and original content is necessary for this strategic push. Because we are transitioning from being essentially a one-product company to a multi-product, media company we may not have the personnel in place to accomplish this effectively. We have already begun taking strides in the right direction with strategic hires, such as Danny Coster from Apple’s industrial design group.2 New Relationships – Most of the content available to view that has been generated by a GoPro product relates to extreme sports such as skiing, sky diving, mountain biking, etc. In order to reach new market segments, GoPro will need to tap into other areas of the active lifestyle. A natural extension is into more organized sports, and creating partnerships with the NHL, NFL, PGA, etc. We have already begun to generate some original content with the NHL, but need to heavily expand these types of partnerships. As research and development helps create different types of smaller, lighter, and easier to use cameras, more possibilities will open up. Aside from sports, it will also be important to partner with non-sport related companies as well, as is seen with our work with BMW and Fisher Price. However, we need to push to translate these relationship into meaningful impacts for the company, not just cool ideas. Original Content – With our new initiative to push content creation, we need to think about how people reacted when they first saw Hero camera video footage for the first time and aim to recreate that level of excitement. The additional investment in the company and fostering of new relationships will help to turn GoPro into a media company fueled by our own unique products and unique partnerships. However, it is important to remember in this content focus that we do not spread ourselves too thin. With so many potential new endeavors, we cannot forget to think about our financial performance. Execution: Given the poor performance of the stock, declining sales, and a need to regenerate interest in the brand, our timeline for execution is heavily focused on the next two years. Our most immediate need is to create an easier user interface and more effective editing software. One of the largest product complaints is how difficult it is to generate and edit videos once the footage is shot. If we are to successfully transition to a media outlet, this is an imperative first step.
2 "A GoPro Inc Game Changer? Risky Business Model Needs More Than Apple Designer Can Offer -- The Motley Fool." The Motley Fool. N.p., n.d. Web. 27 Apr. 2016. <http://www.fool.com/investing/general/2016/04/18/a-gopro-inc-game-changer-risky-business-model-need.aspx>.
Second is to begin to foster relationships with the biggest impact strategic partners over the next year so new content and brand interest rises. Focusing on partnerships with individual athletes and major sports leagues will give us access to the individual preparation for a game and also a behind the scenes look at a specific league as a whole (e.g. NHL). For the partnerships with major sports, launching programming at the beginning of a season or the beginning of the playoffs when sports interest is at its peak would be optimal for peak viewership and potential advertising dollars. As examples, behind the scenes footage during the NFL training camps or special camera angles during the World Series would be two such opportunities in the coming months. Additionally, the coming Christmas season would present an opportunity to exploit our partnership with Fisher Price as new products featuring GoPro cameras would be advertised.3 Because the stock has been generating bad press, and the excitement about the brand has diminished, it is important to use these partnerships to build back any lost brand reputation over the next six months to a year. Furthermore, getting GoPro camera’s in the hands of artists is essential to widen our consumer base. GoPro is almost entirely synonymous with action sports; however, if we can get GoPro’s in the hands of individuals outside the realm of athletics who can use their artistic abilities to create original content, then that would be a vehicle for us to show the versatility of our product. This can be done by partnering with actors, directors, film students etc. Lastly, we need to roll out new products over the next two years. We are slated to roll out the Karma drone in 2016, and have already launched the smaller and lighter Hero Session, which are great first steps in this initiative (Exhibit 4).4 Aside from new camera models, different housing and harnessing units can also drive sales and allow for new uses for existing models. Overall, we face tough challenges ahead, especially related to improving our stock performance. However, we feel the steps we have already taken, and those we lay out above, will lead to the next successful phase for GoPro.
3 "GoPro Inc. Wants to Put Cameras in Everything -- The Motley Fool." The Motley Fool. N.p., n.d. Web. 27 Apr. 2016. <http://www.fool.com/investing/general/2016/04/16/gopro-inc-wants-to-put-cameras-in-everything.aspx?source=yahoo-2>. 4 Insider, Business. "THE DRONES REPORT: Market Forecasts, Regulatory Barriers, Top Vendors, and Leading Commercial Applications." Business Insider. Business Insider, Inc, 2015. Web. 27 Apr. 2016.
Appendix Exhibit 1 – Camera Sale Types over Past Four Years
Exhibit 2 – ESPN X Games Viewership over Past 8 Years
Exhibit 3 – Share Price Ranges and Volatility
*Share Price Data Taken from Yahoo Finance
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Exhibit 4 – Drone Market Potential
Insider, Business. "THE DRONES REPORT: Market Forecasts, Regulatory Barriers, Top Vendors, and Leading Commercial Applications." Business Insider. Business Insider, Inc, 2015. Web. 27 Apr. 2016.
Exhibit 5 – Net Income and Unites Shipped Over Past Five Years
