GoPro's Q2 Factory Shift to Guadalajara From China to 'Support' US Sales Starting Q3
GoPro remains "on track" to begin "ramping" its "U.S.-bound" action-camera production this quarter in Guadalajara, Mexico, as a proactive hedge against possible future Section 301 tariffs on Chinese goods, said Chief Financial Officer Brian McGee on a Q1 call Thursday evening. GoPro has no current exposure to the three rounds of tariffs imposed since July but wanted protection anyway against new duties, he said.
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Guadalajara's production ramp will "support" U.S. sales beginning in Q3, said McGee. "We expect most of our U.S.-bound cameras will be in production in Mexico in the second half of 2019." GoPro's decision to shift production of most cameras from China to Mexico destined for U.S. import "supports our goal to insulate us against possible tariffs, as well as recognize some cost-saving and efficiencies," he said. GoPro says it's keeping production of non-U.S. cameras in China because it's an important strategic hub and the Chinese consumer market loves the product.
President Donald Trump threatened May 5 to impose 25 percent tariffs "shortly" on the remaining $325 billion in Chinese imports previously "untaxed" (see 1905060015). His threat the same day to hike the 10 percent List 3 tariffs on $200 billion in Chinese goods to 25 percent became fact at 12:01 a.m. Friday. “Raising tariff rates or imposing new tariffs on American families is not a winning negotiating tactic" with the Chinese, said CTA Friday. The tariff hike will raise the “significant toll” the trade war already has taken on U.S. businesses, workers, and consumers,” said Naomi Wilson, Information Technology Industry Council senior policy director-Asia.
GoPro soon will add the ability to offer its Plus subscription service to its action-cam buyers as an attachment sale and remove a big impediment to growing program enrollment, said CEO Nicholas Woodman. The service is $4.99 a month after a one-month free trial and offers unlimited content storage in the cloud, free replacement insurance for broken cameras and 50 percent discounts on accessories.
Paid Plus subscribers grew to 220,000 in Q1, a 50 percent year-over-year increase and a 10 percent rise sequentially from Q4, said Woodman. “We see Plus as an important opportunity to grow margin and operating profit, and we are investing accordingly” in marketing the service and expanding its reach, he said.
“We have learned that it’s paramount to acquire a new subscriber at the time of camera purchase, if not very shortly thereafter, and we currently don’t have the ability to do that,” said Woodman. “That’s coming online in short order.” GoPro also is talking to retailers about offering Plus subscriptions in-store at the point of purchase “and make it economically beneficial to the retailer to help us grow” the subscriber base, he said.
“Imagine how hard it would be for Best Buy to sell insurance if they were only able to pitch the consumer on the offer two weeks to three weeks after that consumer took that TV home and had it hanging on their wall,” said Woodman. “That would be a very difficult conversion and that’s actually what we have been dealing with.”
Offering Plus as an attachment purchase will be “a very important change in our go-to market strategy that we think is going to have a significant impact on our subscriber base in the future,” said Woodman. The 220,000 paid enrollees added more than $3 million of revenue in Q1 at “very high margin,” said CFO McGee. “It’s very accretive to margin and the bottom line.”
GoPro plans "an exciting refreshed lineup at all price points" for the holiday quarter, said Woodman. "Look historically to GoPro’s new product launches for some indication on what to expect." GoPro's flagship Hero7 Black camera is "driving social viewership" and "appreciation of our brand," he said. "That’s teeing us up, we believe, famously for our new line of refresh later this year."