Camera maker GoPro (GPRO 8.26) reported its second quarter results after yesterday's close. Those results lacked earnings; nonetheless, they were replete with positive surprises that have sent short sellers running for cover.
The first surprise was that the company's revenue of $296.5 million, up 34.3% year-over-year, was much higher than analysts were expecting. The next surprise was the company's non-GAAP gross margin rate of 36.2%. While down 620 basis points from last year, the gross margin rate was above the guidance range of 32.5% to 34.5%. The third surprise was adjusted EBITDA being positive.
And the fourth surprise was GoPro's adjusted net loss of $0.09 per share was not nearly as large as analysts were expecting. In the same light, GoPro's third quarter guidance calling for an adjusted net loss between ($0.11) and ($0.01) was also better than analysts' average expectation.
The better relative performance in the second quarter was attributed to strong demand and effective cost management. Global sell-thru of cameras increased 18% sequentially and sell-thru above $300 jumped 13% year-over-year. GoPro's HERO5 Black was the best-selling digital image camera in the U.S. in the second quarter and its drone, Karma, was the second-best selling drone brand in the U.S. in the second quarter.
It was encouraging to hear that GoPro's inventory declined 39% quarter-over-quarter and that the forward weeks supply in the channel was down 25%, both of which the company said sets up well for upcoming product launches such as HERO6 and Fusion, its 5.2K spherical camera.
GoPro is also excited about its new QuikStories app, which automatically pulls footage from a HERO5 camera and creates ready-to-share videos on your phone. The app was launched on July 27.
Given its second quarter performance, GoPro said it continues to track toward its goal of full-year non-GAAP profitability in 2017.
For the third quarter, GoPro is projecting revenue of $290-$310 million, the low end of which is above analysts' average expectation. Non-GAAP gross margin is expected to be 36%-38%.
GPRO is a heavily-shorted stock, with an estimated short ratio of nearly 15 days. The collection of its better than expected news, and the positive response following the report, has undoubtedly prompted some short-covering activity that has exacerbated the stock's gain following the report. GPRO shares, which have fallen 39% over the last 52 weeks, are up 16% in pre-market action.