GoPro posted weaker-than-expected fourth-quarter revenue as Covid infections and tighter restrictions hit Christmas sales, but it remained upbeat over plans to become a subscription-based direct-to-consumer (DTC) operation.

The action camera maker reported revenues of $358 million in the three months to Dec. 31, down 32 percent from a year earlier and short of expectations of $374 million. The gross margin contracted by 0.2 percentage points to 38.3 percent in the fourth quarter of 2020, but operating costs were reduced by 28 percent. Quarterly net income fell by 54 percent to $44 million.

Full-year revenues dropped by 25 percent to $892 million, and net annual losses widened by 356 percent to $66.7 million.

Average selling prices went up by 14 percent in the quarter. Cameras retailing above $300 represented 91 percent and 89 percent of revenues in the fourth quarter and for all of 2020, respectively.

However, the company’s CEO, Nicholas Woodman, said the growth in annual subscriber numbers to GoPro.com had beaten forecasts, up 145 percent to 761,000 from 311,000 against a target of 600,000 to 700,000. “Subscriber growth and retention have been impressive in all regions. Importantly, the majority of both new and total subscribers have signed up directly through GoPro.com, a significantly lower-cost customer-acquisition channel,” he said. “GoPro’s shift to a more subscription-centric consumer-direct model is resulting in a simpler, more profitable business with materially better cash generation.”

The company generated more than $200 million in cash flow in the second half of the year and reported a year-end cash balance of $328 million.

GoPro is investing heavily in its phone app, combined with an annual subscription that gives members access to unlimited cloud storage, discounts and other offers. Woodman said GoPro would add new features and enable users of smartphones and other types of cameras to access the app, via a $9.99 annual subscription, later in the first quarter of 2021. “GoPro subscribers will enjoy full access to the expanded GoPro app as part of their existing $49.99 annual subscription, adding further value and retention,” he said.

Woodman added that direct online camera sales grew to 33 percent of revenues in the fourth quarter, up from 12 percent in the fourth quarter of 2019. GoPro.com’s annual revenue doubled to $283 million. On the other hand, both the retail and the wholesale channels were weak in Europe and the Asia-Pacific region because of pandemic-related restrictions, partially offset by strength in North America.

The management forecasts that direct-to-consumer sales will double this year. The number of subscribers is expected to grow to one million in the second quarter and to two million by the end of 2021.

It estimates that the company will generate some $50 million in annual recurring revenues for every one million GoPro subscribers, generating 50 percent or better operating margins. “The steps we’ve taken to improve our business during the pandemic should serve us very well when the world begins to recover in earnest – but as a business, fortunately, we don’t have to wait for that to happen,” said Woodman.