On Wednesday, Nov. 30, GoPro Inc. announced plans to slash its workforce by 200 jobs, representing 15 percent of the 1,700 total workforce in the company.
GoPro To Cut Jobs
According to The Wall Street Journal, the decision of GoPro Inc. to cut 15 of its workforce comes after the failure of company's attempts to expand beyond its core business of action cameras. GoPro has announced several moves to reach profitability, including refocusing on drones and action cameras as well as shutting down the entertainment division. It seems that the company gives up on its attempt to push into entertainment industry.
According to Bloomberg, GoPro hopes that cutting staff will help the company become profitable, but this strategy isn't a sure bet. Competition is increasing on several fronts. Since smartphones are getting better, many people prefer now to shoot action with their mobile devices. On the other hand, new companies entering the market, like Snap Inc., are selling glasses that can capture adventure clips and easily post them on social media.
When it comes to the newly emerged drones market, GoPro has to compete against the dominant player, Chinese manufacturer SZ DJI Technology Co. Just a week after GoPro entered the market, SD DJI Technology released a new drone model. Neither the most recent GoPro camera Hero 5 nor the Karma drone has become the hits the company hoped.
Effects Of Job Cuts Announcement
On Wednesday morning after the jobs cuts were announced, the company's shares jumped about 4 percent, while the stock was still down about 44 percent this year. Nick McKay, an analyst at Wedbush Securities Inc., explained that in the marketplace there are more compelling consumer entertainment products with each year that goes by. It seems that GoPro had expended beyond its core customer base and there are also questions of long-term demand for the Hero 5.
According to GoPro, eliminating more than 200 full-time positions and closing down the entertainment unit will help the company becoming profitable next year by reducing operating expenses to about $650 million in 2017. President Tony Bates will leave the company by the end of the year. He was recruited in 2014 from Skype to help build GoPro's media operations.
Originally, GoPro had planned selling ads against video content posted online by users. The company said in the IPO prospectus that it would produce original programming. During its short existence, the GoPro entertainment unit made some high-profile hires. Among them is included HBO executive Bill McCullough.
Now, in a sharp reversal, GoPro is abandoning the dream of becoming a media company. Despite partnerships with the likes of Xbox Live and Virgin America, the profits never materialized. Robert Stone, an analyst at Cowen & Co LLC., explained that one of the reasons for this failure is the fact that, before it can expand into other things a company needs a sustainable profit-making base business.
GoPro will be able now to better focus on hardware, with the entertainment division gone. But the company is challenged even in that business. GoPro lowered its revenue forecast for 2016 earlier this month, as sales growth has been slowing down. The company has blamed the situation on production problems.