There are some times that investors need to ask a company why they need to ask for money at any given time. There are thousands of public companies for people to invest money into these days, and there seem to be as many or more private companies wanting fresh investment capital. The reason this matters today is that some public companies feel the need to raise cash. Some do it after good news and stock price recoveries to bolster their finances, some do it out of pure need and desperation.
So what are investors supposed to make of GoPro, Inc. (NASDAQ: GPRO) filing to raise fresh capital? Its stock has recovered massively from its lows and is now fairly close to a year high. That said, this is a shell of its former glory days and its sales are expected to be down in the double-digit percentages in 2020 during the pandemic.
GoPro filed after the close of trading to offer $100.0 million worth of convertible senior notes. The notes are to be due in 2025 if they are not converted, and it could be a total of $115 million if the additional $15.0 million overallotment is taken.
While the terms have not yet been set, among additional terms, the noteholders will have the right to require GoPro to repurchase or GoPro can convert the notes if its common stock exceeds 130% of the conversion price for a specified period of time. Other terms are subject and the details had yet to be determined.
While GoPro said the funds will be used for general corporate purposes, it is also using a portion of the proceeds to set up capped call transactions that are common in convertible note offerings. Those “general corporate purposes” are said to include repaying debt, making acquisitions or investments. That said, the company specified that has made no commitments to any acquisitions or investments at this time.
Again, the real question is why GoPro would need this capital right now. The company ended 2019 with $165 million in cash and $200 million in receivables, and Wall Street’s consensus analyst estimates are for it to barely be profitable in 2020 with a larger recover in earnings and revenues in 2021.
As of September 30, 2020, GoPro had cash of $146.8 million and another $107 million in accounts receivable. The problem appears to be that after backing out $148.5 million in goodwill and intangibles the assets of about $485 million come in just under its $490.5 million in total liabilities.
When GoPro announced a strategic realignment to go to much more of a direct-to-consumer model in April while still selling through some key stores, the pandemic was wrecking businesses left and right. Among the actions taken, GoPro was targeting a $100 million reduction in 2020 operating expenses along with a workforce reduction of more than 20%. The company further targeted to reduce non-personnel related operating expenses to $250 million in 2021.
Some investors may wonder if GoPro thinks it needed some reserve capital to offset coming liabilities while preserving cash. Others may wonder if the Woodman-led team thinks that a 300% rally from its absolute lows in 2020 is just an opportunistic time to grab some capital for if and when the next rainy day comes to pass. There was no formal comment from management that shed any light on the offering, but that is actually normal policy for most companies.
This stock had been very popular with the Robinhood traders earlier in 2020, and it is now trading above the prior very bullish Oppenheimer analyst target price.
After closing up 0.76% at $8.00, GoPro shares were down more than 5% at $7.58 in Wednesday’s after-hours trading. Another observance is that GoPro was under $4.50 at the start of 2020, and it has a 52-week range of $2.00 to $8.82. Refinitiv’s consensus analyst price target was last seen at $6.76.
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