• Contract management is when someone takes on the responsibility of managing contracts for employees or vendors or other parties.
• Contract managers need legal knowledge to accurately lead the contract management process.
• Not all companies have set contract managers, but major defense firms or companies that frequently work with the government tend to use contract managers.

Managing contracts is an overlooked form of management. Managers interact frequently with employees, and some of those discussions and situations naturally relate to compensation. Some of these conversations will deal with contract management. Other times, businesses need to manage contract agreements with other businesses. It’s not talked about much, but contract management is an important business topic. If you’re unsure of how the contract management process works, it’s important to understand the basics.  

What is contract management, and why is it important?

Contract management is the process of managing contract creation, execution, and analysis to maximize operational and financial performance at an organization, all while reducing financial risk. Organizations encounter an ever-increasing amount of pressure to reduce costs and Excellerate company performance. Contract management proves to be a very time-consuming element of business, which facilitates the need for an effective and automated contract management system.

The fundamentals of contract management

When two companies wish to do business with each other, a contract specifies the activities entered into by both organizations and the terms through which they will each fulfill their parts of the agreement. Contracts affect business profitability in a very large way due to the emphasis on revenue and expenses.

When a contract is phrased poorly, one organization might lose countless thousands of dollars over a simple technicality they lacked the resources to identify. Effective contract management can ultimately create a powerful business relationship and pave the road to greater profitability over the long term, but only when managed correctly. It’s a good idea to include a legal department or a lawyer in contract management discussions. The precise wording of contracts is crucial to contract management.

Contract management also applies to managing different contracts with freelancers or employees. These occasionally require management and alterations that help both parties.

Generally, contract management involves a few key stages. There’s the early stages or pre-award phase. This is all the work that takes place prior to a contract being given to someone, whether it be a business or an employee. The middle stage is when the process is awarded. This includes all the paperwork to make the agreement final. Third, there’s the post-award stage. This is where a lot of contract management and maintenance comes in.

Those three basic stages are a simple way of looking at contract management in three phases, but the process is more complicated than that and can be viewed in more stages depending on how detailed a view you’re taking. We’ll discuss a deeper view of the process later.

Elements of successful contract management

It isn’t enough that an organization has professionals in place to handle contract management. Employees must be augmented with the presence of processes and software companions to satisfy increasing compliance and analytical needs. When a contract management strategy is successfully implemented, organizations can expect to see:

• The expected business benefits and financial returns are being realized.
• The provider is cooperative and responsive to the organization’s needs.
• The organization encounters no contract disputes or surprises.
• The delivery of services is satisfactory to both parties.

Activities that comprise good contract management

The foundation for contract management relies on the implementation of successful post-award and upstream activities. During the pre-award stage, employees should focus on the reason for establishing the contract and if the provider can fulfill the terms of the agreement.

Additional consideration is needed to understand how the contract will work once awarded. Avoiding unwanted surprises requires careful research and clarity of purpose in the genuine contract.

Contract management requires a level of flexibility for both parties involved and a willingness to adapt contract terms to reflect any changing circumstances. Problems are inevitable, which means organizations must be prepared for the unexpected and be able to adjust contract terms when needed. [Related Story: Loan Contract Terms to Look For]

What are the stages of the contract management process?

While there are many components of contract management, we can summarize the process by breaking it into five clear stages: creation, collaboration, signing, tracking and renewal.

We can further identify individual steps within the stages. In all, we can break the process down into nine steps, each of which contributes to one of the five overarching stages. This makes it easier to manage the end-of-quarter crunch that tends to happen when it’s time for a new round of contracts. Here are the steps of each stage:

Creation

1. Initial requests. The contract management process begins by identifying contracts and pertinent documents to support the contract’s purpose.

2. Authoring contracts. Writing a contract by hand is a time-consuming activity, but through the use of automated contract management systems, the process can become quite streamlined.

Collaboration

3. Negotiating the contract. After drafting the contract, employees should be able to compare versions of the contract and note any discrepancies to reduce negotiation time.

Signing

4. Approving the contract. Getting management approval is the step where most bottlenecks occur. Users can preemptively combat this by creating tailored approval workflows, including parallel and serial approvals to keep decisions moving at a rapid pace.

5. Execution of the contract. Executing the contract allows users to control and shorten the signature process through the use of electronic signature and fax support.

Tracking

6. Obligation management. This requires a great deal of project management to ensure deliverables are being met by key stakeholders and the value of the contract isn’t deteriorating throughout its early phases of growth.

7. Revisions and amendments. Gathering all documents pertinent to the contract’s initial drafting is a difficult task. When overlooked items are found, systems must be in place to amend the original contract.

8. Auditing and reporting. Contract management does not mean drafting a contract and then pushing it into the filing cabinet without another thought. Contract audits are important in determining both organizations’ compliance with the terms of the agreement and any possible problems that might arise.

Renewal

9. Renewing. Manual contract management methods can often result in missed renewal opportunities and lost business revenue. Automating the process allows an organization to identify renewal opportunities and create new contracts.

Much of contract management comes down to handling these nine steps. Contract lifecycle management is critical. As different contract types go through their various stages, contract managers need to monitor any potential changes or breaches of contract. If an employee or business is unhappy with their contract, it might be worth making alterations to the contract. It’s important to follow contractual obligations while also making sure both sides of the contract are happy.

There are many times during the contract management process when lifecycle management becomes important. Vendor performance and risk management are important considerations during the management of contracts. For example, if a vendor fails to meet their contractual obligations, you may need to rework the contract or enforce some disciplinary measure.

What is contract management software?

While the tradition is to manage contracts manually through folder and file cabinet storage, the practice is riddled with inefficiencies that can only detract from an organization’s overall efficiency.

Contract management software is an electronic approach to solving these problems. Contract management software suites can organize all contract paperwork. The software can put signing and renewing on an electronic calendar that is easy to manage, and it can help you track and allocate resources related to the contract management process.

Integration with an automated contract management service can free up countless man-hours and automate countless processes associated with managing a contract, thus creating more value for a company. 

“Contract management software stores key information about contracts relating to providers, commercial leases and licensing agreements,” said Robert Powell, CEO and founder of the Rob Powell Biz Blog. “The overall purpose of contract management software is to streamline administrative tasks by creating a centralized and uniform record for each contract’s processes.”

Using contract management software can make it easier to monitor complex contracts without relying solely on paperwork.  

“The most important aspect of contract management software is that it allows employees in multiple locations to access contracts in one place,” Powell said.

Who uses contract management software?

This software will primarily see use in departments that directly deal with creating, tracking and signing contracts. This is often offloaded to the HR department, which manages the vein of employment accounting. The software can also involve managers who need to complete vital processes. Since it can integrate with calendars and communication software, HR can use the heavy-lifting components of the software suite, while the rest helps to loop in managers and personnel who are needed for specific aspects of signing or negotiation.

How to become a contract manager

Not all universities offer a degree in contract management, but some schools do. Getting that education is one option, but there are other business degrees that position you for success in the industry. From there, you want to add contract management experience in some form.

“With a bachelor’s degree and a few years of experience in the field, you can apply and test for certification through the NCMA (National Contract Management Association),” said Jared Weitz, CEO and founder of United Capital Source. “Along with education and credentials, a contract manager needs to have solid communication and writing skills and a keen eye for organization and deadline management.”

A law degree can also be beneficial to this career path. Legal knowledge is critical in managing contracts. Contract management and negotiation both rely on legal knowledge and expertise.

If you want to become a full-time contract manager, it’s a good idea to connect with other contract managers to learn how they entered their current role. There’s no one set way to become a contract manager, but business experience is important when becoming a contract manager.  

How much money does a contract manager make?

Understandable, the salary for a contract manager varies by qualifications and location. According to PayScale,  the average annual salary for a contract manager is $80,151. The site lists Northrop Grumman Corporation, Accenture, and the Raytheon Company as a few of the most lucrative companies for contract managers.

Contract managers can also work their way up to a senior contract manager, contract director or a contract administrator. Contract analyst is another common career path within the contract management field.

The bottom line

Contract managers help manage the legal and financial aspects of contracts with businesses or employees. For companies that make frequent contractual agreements, hiring a contract manager can be a good idea.

Ryan Goodrich contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.

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It's a mobile world, but we have not fully abandoned the desktop PC. Real computing work (and a lot of the play) requires a full personal computing system. And to get the most out of it, you need software.

Software can be expensive, but free programs have been a mainstay of the desktop experience for decades, and today's offerings are powerful. You can find a great variety of free audio and video editors, office suites, file utilities, organizers, photo converters, and more. To keep things free, software developers can adopt an ad-based model, create donation-ware, or use a shareware/freemium model that charges for extra features.

To be included in this roundup, software must be available directly from the developer/creator/original publisher. It should (typically) have a Windows-based download—we're not including browser extensions, because we're not all using the same browser. But we've included web-based apps that are as good as—or even better than—most downloadable programs.

More requirements for inclusion here: If the software is on a tiered sales model, the free version cannot be trial-ware; it must offer at least a free-for-life option. Preferably, the program has had an update in the last year or two, and the program should have little or no advertising to support it. Finally, this list is about software for productivity; there are plenty of other places to find free PC games.

Always be on the lookout for crapware installers: To make ends meet, many creators of otherwise great free software, or the services that offer free programs for download, bundle in things you don't want—i.e., crapware. Worse, the installation steps are often obfuscated, so you might unintentionally provide the unwanted program with permission to be installed. For more about how to spot and avoid this problem, see How to Rid a New PC of Crapware.

A related pro tip: get desktop software only from the maker of the software directly. It's not foolproof—after all, developers want to eat, too—but it helps.

For more free software, check out The 100 Best iPhone Apps and The 100 Best Android Apps.

Did we miss any free programs you can't live without? Let us know in the comments.

Best Free Audio/Video Software

Best Free Audio-Editing Software

Windows, macOS, Linux

Open-source Audacity(Opens in a new window) can record and edit audio files on more tracks than you can imagine. It then outputs exactly what you need. It is perfect for noobs and pros alike, on any desktop OS.

MSRP Free

Best Free Video Converter

Windows, macOS, Linux

No one would call HandBrake(Opens in a new window) simple, but it's hard for any other video transcoder to compete in power and comprehensiveness. Transcode means to convert; Handbrake will turn almost any video format into another video format. It's free, it's open-source, and it has years of practice.

Best Free Video Editing

Windows, macOS, Linux

While it lacks the slick interface found in most other video editors, Shotcut(Opens in a new window)'s got lots of other powers, and you don't have to pay anything for them—you have nothing to lose but time in trying it out. You can undock panels as you work, customizing the editing on screen, which is great on multi-monitor setups.

MSRP Free

Best Free Game Recording/Streaming Software

Windows, Web, iOS, Android

Stream your video gaming with Logitech's Streamlabs Open Broadcasting System(Opens in a new window) (aka SLOBS) directly to YouTube, Twitch, or Facebook. You can even switch between gameplay and your webcam to make some commentary. There may be a learning curve because of the power it wields, but you can find plenty of help online.

Best Free Video Player

Windows, macOS, Linux, iOS, Android

The premier way to watch just about any video, no matter the video's weird codec, VLC media player(Opens in a new window) has features including auto-rotating smartphone videos taken at the wrong orientation and resuming playback from where you stopped. Seriously, VLC plays back anything on all desktop platforms, and it guarantees no ads, tracking, or spyware. (For more, read How to Play DVDs in Windows 10.)

MSRP Free

Best Free Communication Software

Best Free Messaging Software

Windows, macOS, Linux, iOS, Android, Xbox, PlayStation

Millions of people worldwide use Discord for text, voice chatting, and video chatting—mainly while kicking one another's arses in online games or watching gameplay streams on Twitch or Caffeine. Even Microsoft wanted to buy it. You can spend a monthly ($9.99) or annual ($99.99) fee to go premium for better video/audio quality and to upload larger files.

Per Month, Starts at $9.99

Best Free Remote Access

Windows, macOS, Android, iOS, browsers

PCMag's top pick for software that can control of other computers is TeamViewer(Opens in a new window). Almost everything you need is free for personal use: desktop sharing, file transfers, and chatting with remote users. The setup couldn't be easier. Take control of a remote PC over an internet connection with the app, or use a browser (including Chrome OS) with the TeamViewer (Opens in a new window)extension. A caveat: Remote-access tools can be abused, so don't turn one on unless you're on the phone with the person you're allowing access to. And make sure to turn it off after you're done.

Per User, Per Month, Starts at Free

Best Free Video Conferencing

Windows, macOS, Linux, web, iOS, Android

Want to host an online meeting for you and 100 of your closest friends? Zoom Meetings can let them all in for free, for up to 40 minutes from any device, even a smartphone. Competitively priced premium plans with additional features are also available. Zoom is a PCMag Editors' Choice award winner, and it made our list of the Best Tech Products of 2021, too. (Also check out our top zoom tips.)

Per User, Per Month, Starts at $14.99

Best Free Writing and Design Software

Best Free Desktop Publishing Tool

Windows, macOS, Linux

Scribus(Opens in a new window) is the open-source equivalent of Adobe InDesign for desktop publishing, or as close as you can get. It has built-in color separation and management and a lot more, all free.

Best Free Writing Tool (Screenwriters)

Windows, Linux

Do you fancy yourself a budding screenwriter but lack the funds for high-end tools such as Final Draft? Trelby(Opens in a new window) does a fine job of helping you format correctly, remember character names, and import and export to formats used in Hollywood.

Best Free Writing Tool

Windows, macOS, iOS

The highly structured interface of yWriter can help a budding or experienced novelist get a real handle on their story and the characters who may be trying to overtake it. The program is full of stats on what you have written, giving you a data-driven writing experience. This program doesn't have the depth of Scrivener, but it does have a much lower price—it's free, or you can make a donation.

MSRP Free

Best Free World-Building Tool

Windows, macOS

Pronounced how you’d probably guess, Shaxpir(Opens in a new window) is like a simplistic version of our top-rated Scribner, with an “everyone” free tier that is very useful, although pros may consider the $7.99 a month subscription with extra features. For no charge, you get the full manuscript builder, world-building notebook, progress tracker, offline use, and cloud backup.

Best Free Entertainment Software

Best Free Maps Software

Windows, macOS, Linux, iOS, Android

As if high-end software that lets you virtually fly across the globe isn't cool enough—especially as it has all the same features as its online/mobile sibling, Google Maps—Google Earth Pro(Opens in a new window) for the desktop is totally free. It includes advanced features such as high-resolution printing, distance measuring, and global guided tours. Although it also comes in web and mobile versions, the desktop version is the only one that lets you view satellite images of the moon and Mars. It also has star maps.

Best Free Media Center

Windows, macOS, Linux, iOS, Android, Xbox, PlayStation, Smart TVs, media hubs, NAS devices

If you don't know or care what a media server is, but you just want to stream your videos and music collection around the house, Plex could work well for you. Install it on all your devices, point it at some media, and those audio and video files become available on everything—even remotely. (For more, read How to Set Up a Plex Server, How to Share Your Plex Libraries, How to Organize Your Plex Media Library, and The Expert's Guide to Managing Your Plex Server.)

Best Free Social Media Software

Windows, iOS, Android, Web

You probably think of TikTok as a mobile-only phenomenon. But not only can you access the video wonderland on the desktop at TikTok.com(Opens in a new window) to see your For You page, there's also a well-done app for it right in the Windows Store. TikTok Windows won't work with your webcam, but you can use it to upload video you edit to perfection with desktop video tools. It's all free but has ads for support—just like on the mobile versions, they show up looking like videos you might want to see.

Best Free Imaging Software

Best Free File Viewer and Converter

Windows only

View, manage, and compare your images with this fast and intuitive freebie. FastStone Image Viewer(Opens in a new window) supports a slew of image formats, including RAW image formats from specific digital camera manufacturers. It has companion apps for screenshots and photo resizing.

Best Free Graphics Software (Vector Editing)

Windows, macOS, Linux

Adobe Illustrator is the high bar of vector image editing, but it has a premium price to match. You can still get cross-platform Scalable Vector Graphic (SVG) image creation with the free Inkscape. You'll have to work a little harder to learn it, but it may be exactly what a talented (but cash-strapped or subscription-shy) artist needs.

MSRP Free

Best Free Graphics Software (Bitmap Editing)

Windows only

Is Paint.net(Opens in a new window) a perfect replacement for Photoshop? Nothing is as powerful as Adobe's program, but at this price—free—Paint.net comes close. For any minor (and even some major) picture manipulation, it's fast, comprehensive, and easy to use.

Best Free Productivity Software

Best Free Office Suite

Windows, macOS, Linux

There aren't many free office suites, and only one is a get for the major desktop operating systems. The open-source LibreOffice, now in version 7, suffers a bit in the polish department, lacks collaboration features, and sports an overstuffed toolbar interface that might remind you of Microsoft Office a decade ago. But it's powerful nevertheless, and it easily converts and imports files from other systems. It comes with a word processor (Writer), a spreadsheet component (Calc), a presentation program (Impress), a vector drawing program (Draw), and even a full database (Base) and math-formula editor (Math). And it's all utterly free.

MSRP Free

Best Free Note-Taking App

Windows, macOS, iOS, Android, Web

Once just a part of Microsoft Office, the sublime OneNote has become a free, standalone powerhouse for note-taking across all the major OSes. It still works with Office, syncs data across all platforms, and has full online access via Office.com, with storage on OneDrive. That's why it's our Editors' Choice pick for note storage.

Per Year, Starts at $69.99

Best Free Text Editor

Windows only

Notepad++(Opens in a new window) is nothing like the anemic Notepad most Windows users grew used to over the decades. This free get has tabs, color-coded nesting text, WYSIWYG printing, and support for macros. It's a must for hand-coders or any writer who wants a minimalist interface.

Best To-Do List for Everyone

Windows, macOS, Linux, iOS, Android, Web

This is our favorite to-do list app, ever. We supply the paid version a full five-star review, but even the free version is fantastic. The Todoist interface is simple perfection no matter what platform you use it on—even wearables and via email (turning messages into tasks). The free version gives you five projects with five collaborators on each, working across 300 possible tasks, supports uploads of 5MB files, and keeps a one-week active history.

Per Month, Starts at $5.00

Best Power-User Note Taker

Windows, macOS, Linux, iOS, Android

Another place to put all your notes? Obsidian’s got a learning curve, but once mastered, it's the best note-taker you’ll find as a power user. The free version is available for personal use—it lacks only support and sync options, but you can get around the sync by storing your Obsidian Vault in a spot where a cloud service backs it up.

MSRP Free

Best Programming Environment

Windows, macOS, Linux, web

Need to write some code? Use VS Code from Microsoft(Opens in a new window). It has everything you’d want in a coding environment, from plug-ins to great organization. And it's easy to get started with this program, even though you have to do a little setup to tweak it to perfection. And the price is great.

Best Free Security Software

Best Free Antivirus

Windows, macOS, iOS, Android

Our Editors' Choice award winner for free antivirus this year, Avast One Essential really is essential if you've got a Windows computer. It's a top-scorer against malware in lab tests, and it did great in our hands-on tests, too. It has a whole new look, and it offers more free protection than ever.

MSRP Free

Best Free Password Manager

Windows (including a Microsoft Store app), macOS, Linux, Android, iOS, browser extensions

You'll see many password managers out there, and a few of them have a free tier, but none is so completely free as the fully open-source Bitwarden Free. (You can pay for extra features, if you want them.) The free version has unlimited password storage and full sync across all your devices. It even includes a full multi-factor authentication app. (For more, read our guide to the Best Free Password Managers.)

MSRP Free

Best Free Secure Browser

Windows, macOS, Linux, Android, iOS

Do you want to stop the trackers watching you online dead in their digital tracks? Going incognito on a standard browser isn't enough. You need to use a full-on privacy browser, one that blocks the cookies and especially the fingerprinting of your whole browser and computer. Brave(Opens in a new window) is one of a slew of them with a rating for strong protection from the Electronic Frontier Foundation, but it also adds in advanced protection against fingerprinting. (For details, read The Best Private Browsers.)

MSRP Free

MSRP Free

Best Free VPN

Windows, ChromeOS, macOS, Linux, iOS, Android

You probably should pay for a VPN, but you can skip it with a tool like the PCMag Editors' Choice award winner ProtonVPN, albeit with a few restrictions. That said, it's not just our pick for the best free VPN, it's our best VPN overall, period. With ProtonVPN, your bandwidth is not limited, and the focus is mainly on keeping you secure. (For more, read The Best Free VPNs.)

Price as Tested $9.99

Best Free Utilities

Best Free Backup and Synchronization Software

Windows, macOS, Linux, iOS, Android

You now get 10GB free from IDrive to back up files from all your devices, an upgrade from the original 5GB. If that's enough capacity for you, you'll find this service more than up to your needs. It'll even back up your photos and videos from Facebook. That's why it's a PCMag Editors' Choice award winner for backup services suitable for remote workers.

Per Year, Starts at $79.50

Best Free File Recovery and Deletion

Windows only

Recuva (say it out loud) is a must on the tool belt of any techie: It's the key to helping recover a lost file. It's easy to understand, but note: It should really be installed before you lose a file. It's a portable application, too, so you have the option to run it from a USB thumb drive.

MSRP Free

Best Free File Transfer Program

Windows, macOS, Android

Sure, Windows itself copies files between folders and drives just fine. But TeraCopy(Opens in a new window) can take over that job and make it sing—it's faster, and the interface for making copies is better looking. Plus, it provides more information and feedback, and it can even recover from transfer errors.

Best Free Screen Capture

Windows only

Even those with modest screen-capture needs would say the old Snipping Tool in Windows was lacking. Now Windows 10 and 11 users have Windows Snip & Sketch, an evolutionary leap akin to protoplasm turning into hominids—albeit still lacking things like video and voice capture. Still, the ability to annotate a screengrab will make all the difference versus what was available before. (For more, read The Best Screen Capture Apps.)

MSRP Free

MSRP Free

Best for Screen Video Capture

Windows, macOS, Android, iOS

Want to capture more than a still image? Screencast-O-Matic will do it, bridging between underpowered screenshots and overpowered full-screen video capture. You can pay more if you want the latter. But the free-to-use-forever tier will take still shots, up to 15 minutes of video of your screen (with a watermark), and share to social. The mobile apps will sync your capture files.

Per Month, Starts at $4.00

Best Media Viewer and Annotator

Windows

Well over a quarter century old now, IrfanView(Opens in a new window) has long been letting people view, edit, and organize media and more on Windows—the current version supports Vista all the way up to 11. The list of file format types you can click on and view and annotate instantly is long, the ease of use is legendary. And it's utterly free for personal use.

Editor's note: Seeking Alpha is proud to welcome Ramkumar Raja Chidambaram as a new contributor. It's easy to become a Seeking Alpha contributor and earn money for your best investment ideas. Active contributors also get free access to SA Premium. Click here to find out more »

GoPro's (NASDAQ:GPRO) success in pivoting toward a subscription-based model will help it grow revenues after the company becomes profitable for a fourth consecutive year on a non-GAAP basis. Moreover, as GoPro's paying subscribers exceeded 2 million in 2023 with $100 million in annual recurring revenue at 70%-80% gross margins, the company has succeeded in building brand recognition that will create competitive advantages. Accordingly, my recommendation for investors with shares of GoPro in their portfolio is to hold them; for investors who do not, my recommendation is to buy them for the long term.

About GoPro

GoPro, headquartered in San Mateo, Calif., develops and sells cameras and wearable accessories, subscription services, and software in the U.S. and globally. The company was founded in 2002 as Woodman Labs and changed its name to GoPro in February 2014.

GoPro targets consumers and professional users interested in capturing high-quality photos and videos for personal or professional use. The company's primary business model is selling its hardware products, such as cameras and accessories, directly to consumers through its website and retail channels. GoPro also generates revenue from licensing its technology and user-generated content to third-party companies. Additionally, the company offers cloud services and subscription plans for accessing and sharing footage captured on its cameras.

In the last 30 days, GoPro's share price has witnessed an appreciation of 10.9%. However, the share price declined by 11.9% on Friday, Feb. 3, after the earnings report.

On Feb. 2, the company released its earnings summary for Q4 2022. It posted impressive subscription revenues that went from $20.9M in Q3 2022 to $21.9M in Q4 2022, which was growth of 20.6% in subscription revenues. Furthermore, it had subscriber growth of 8% QoQ from Q3 2022 to Q4 2022.

The company shipped 850,000 cameras in Q4 2022, an increase of 29.4% from 797,000 cameras in Q3 2022. Additionally, GoPro posted impressive 22.5% QoQ revenue growth, from $305.1 million in Q3 2022 to $321 million in Q4 2022. Though the company's gross margins declined from 38.2% in Q3 2022 to 35.1% in Q4 2022, its revenue mix from GoPro.com as a percentage of overall revenues has improved from 32.3% in Q3 2022 to 39.9% in Q4 2022. The Americas continues to be GoPro's biggest market, with 47.6% of its revenues coming from the U.S.

However, its revenues across geographies decreased this year, with Europe decreasing by 24%, the Americas decreasing by 21%, and APAC decreasing by 4% annually due to macroeconomic factors and a strong U.S. dollar. Nevertheless, on an annual basis, APAC was the shining light growing at 9% as most regions in APAC emerged from 2021 lockdowns.

GoPro's D2C revenues are 40% of its overall revenue in Q4 2022 and 38% in 2022, up from 33% and 34%, respectively. Another positive factor is that its GoPro.com business posted 5% growth in 2022 over 2021, driven primarily by 52% growth in subscription and services revenues.

GoPro closed 2022 with revenues of $1.09 billion with 9% EBITDA, generating $95 million in EBITDA. In addition, the company plans to utilize $40 million of its EBITDA proceeds for share buybacks to cover its stock compensation expense.

Despite the strong USD, GoPro's latest results demonstrate the strength of its subscription-based business model's strong execution. According to the Founder, CEO, and Chairman of GoPro Nicholas Woodman:

Our high-margin subscription business is a powerful financial engine, contributing meaningfully to our bottom line and, significantly, building LTV into our model as the GoPro subscription is becoming increasingly synonymous with being a GoPro camera owner.

For GoPro, driving subscriber engagement is their crucial focus, supporting retention and LTV. Again, as per the CEO:

New features that enhance capability and convenience are key drivers of engagement - like automatic highlight videos sent to subscribers after their footage auto-uploads to their GoPro cloud accounts and the automatic clearing of the camera's SD card once that upload is complete.

These new features helped subscribers connect their HERO11 cameras to the cloud and have contributed to an increase in camera usage among its customer base, resulting in a 58% increase in subscribers annually. As per Woodman:

We believe these features also contributed to increased camera usage amongst our broader customer base - in 2022, camera usage increased 15% year over year to approximately 15 million unique cameras connecting to our app.

The company managed to grow its subscriber base by 43% last year, with its subscriber count exceeding 2.25 million. Thus, GoPro's subscription currently generates more than $100 million in annual recurring revenues with an impressive gross margin of 75%. The company believes its future lies in a subscription-based business model and is laser focused on pursuing this significant high-margin growth opportunity.

Furthermore, its Quik model subscription that serves non-GoPro-owning customers has grown 26% annually, reflecting the company's commitment to engaging and retaining customers that don't own a GoPro. The company treats these customers as an important TAM-expanding opportunity and plans to target them further with its upcoming premier-tier desktop app launch.

The company has also done a restructuring exercise by closing its camera production facilities in Mexico, incurring an $8 million restructuring charge. The company expects its production facilities in Thailand and China to meet future demand.

The company's balance sheet is healthy as it ended Q4 2022 with $367 million in cash reserves and $224 million net of debt. In addition, as the company pivots to the subscription model, its DSO outstanding has been reduced to 22 days. Furthermore, the company has shown prudence in managing its supply chain and inventory by ending its inventory days at 55 days.

In the future

As the macroeconomic environment remains challenging, forecasting growth for GoPro becomes difficult. Still, I will put forward my best estimate by looking at the firm's current business model and accounting for the possibility of a global recession in 2023, leading to cautious customer spending. From a demand perspective, the first quarter generally is the weakest for GoPro, and I assume that will not change in Q1 2023. The company forecast $165 million in Q1 2023, which is 45% of Q4 2022 revenues. As revenues decline, it will also result in a contraction of gross margin to 36% due to a stronger USD.

In the future, GoPro's management has decided to focus on the following priorities:

• Maintaining profitability and higher commitment to cash generation.
• Investments in quality skill force, technology and innovation to drive subscriber growth, retention and LTV.
• Growing the subscriber base leading to subscription and service revenues surpassing $100 million.

Risks

GoPro's revenues outside the U.S. are more than 50%, and any further strengthening of the U.S. dollar will impact its future earnings growth on a constant currency basis.

The subscription attach rate, which refers to the percentage of customers who subscribe to the additional product when they purchase a primary product, is a crucial metric that will determine GoPro's growth. At the current subscription attach rate of 90%, GoPro has increased the number of customers who buy cameras at GoPro retail stores and later subscribe via its app. However, any reduction in the subscription attach rate will adversely impact their subscription revenues and future profitability.

GoPro Valuation

I value GoPro looking at its recent financial numbers and going with its story of pivoting toward the subscription model. Thus, the story behind my DCF valuation will incorporate these estimates.

Before I value GoPro using DCF, I will compare GoPro with its peers to see how it performs against them. I have identified the following companies as its peers:

• Avid Technology (AVID)
• Canon (CAJ)
• Nikon Corporation (OTCPK:NINOY)
• Eastman Kodak (KODK)

First, I looked at the critical market multiples to understand how GoPro looks relative to its peer group.

GoPro's ROE looks better vs. its peers and has reasonably low leverage, with its debt to total capital at 17.3%.

From an operational perspective, GoPro's ability to generate free cash flows is better than its peers. Its lower cash-to-conversion cycle is a testament to its pivot to the subscription model.

Before arriving at the intrinsic value of GoPro using discounted cash flow, I plotted a graph to understand how GoPro's gross margin and non-GAAP EBIT margin have evolved in the last five years.

GoPro's non-GAAP EBIT margins became positive in 2021, and although the margins declined in 2023, the decline is due to the challenging macroeconomic factors and the strengthening of the USD. Furthermore, it's evident from management commentary that GoPro focuses on profitability and free cash flow generation.

GoPro's asset efficiency has improved due to its pivot toward the subscription model, as the asset efficiency improved from 12% in 2021 to 26% in 2022. This increase in asset efficiency implies that GoPro has effectively used its assets to generate profits and is earning a high return on its assets relative to its investment.

I use the non-GAAP financial measure of GoPro's financials for operating income and net income numbers for my valuation because it gives a better picture of the company's operating performance and an accurate representation of its underlying cash flows. So, in my DCF valuation, I forecast the following value drivers:

Revenue growth of 10% in the next five years and 7.1% in the next ten years. I base my estimate on the management's commentary on expanding its TAM to target non-GoPro users.

As GoPro continues to pivot toward a subscription model, its EBIT margin will expand, and I forecast GoPro's EBIT to expand from 8.3% in the current year to 10% in the next 10 years.

As GoPro continues to Excellerate its asset turnover, I estimate its sale/invested capital to move to the industry average of 2.23. In addition, management's move to restructure its operations and close production facilities with poor utilization gives me confidence that GoPro will succeed in achieving this target.

Before I value DCF, I capitalize the R&D expenses because R&D expenses have future economic benefits. For example, GoPro has incurred $139 million in R&D expenses. First, I convert these R&D expenses from operating expenses to capital expenditures. Then, I amortize the R&D expenses for three years. After that, I add the unamortized portion of $280 million to the balance sheet. By capitalizing on R&D expenses, I get an accurate representation of the resources GoPro have devoted to future growth and their investment in intangible assets that will help me to determine the ROIC and conclude whether GoPro earns excess returns.

My cost of capital for GoPro is 13%, taking into account the risk-free rate of 3.86%. As GoPro gets more than 50% of its revenues outside the U.S., I account for the country's risks to arrive at equity risk premiums. As a result, my weighted ERP for GoPro is 5.92%.

GoPro has $185 million in debt, and at an effective interest rate of 4.6%, my pre-tax cost of debt for GoPro is 4.93%. At an effective tax rate of 23%, my after-tax cost of debt for GoPro is 3.79%.

The unlevered beta for GoPro is 1.61, and with 16.05% in debt to capital, the levered beta is 1.85. I derive a cost of equity for GoPro as 14.8% and a cost of capital at 13.04%.

My 10-year valuation for GoPro is below:

I arrive at the Enterprise value for GoPro at $6.15 per share. After adding GoPro's current cash reserves of $367 million and subtracting its total debt of $184 million, I derive the equity value at $1.141 billion and $7.32 per share.

As of Feb. 3 2023, GoPro trades at $5.69 per share. Thus, the stock has a potential upside of 28.6% to reach its fair value of $7.32 per share, according to my DCF calculations. Below are my estimates:

As a next step, I ran a Monte Carlo simulation to determine at what percentile my valuation lies. The following are my value drivers for that:

1. Revenue growth
2. Target operating margin
3. Sales to invested capital

I used a truncated normal distribution for revenue growth with a mean of 10% and a standard deviation of 34%. I used a triangular distribution for EBIT with a minimum margin of 3% and a maximum of 10%. For sales to invested capital, I use a uniform distribution with a minimum value of 0.96 and a maximum of 2.

The r-square is high between equity value and target operating margin, implying that improving margin is more important than growth for GoPro's valuation to improve. GoPro's management, with its focus on profitability and cash generation, is focused on the same metric.

Below is my distribution of values for equity values at different percentiles using the Monte Carlo simulation.

The median or 50th percentile for GoPro is $5.8/share, and its maximum price at the 100th percentile is $13.5/share. My valuation of GoPro at $7.32/share puts it between the 75th and 80th percentile, implying that my estimate of GoPro is above the median.

Furthermore, when we look at GoPro's price/book value over the last 10 years and plot it against ROIC, I see that its P/B value is decreasing and ROIC is improving.

At the current market price, GoPro's P/B value is the lowest it's been in the last 10 years. At the same time, the company's ROIC has improved from -6.7% in 2019 to 9.1% in 2023. Thus, at the current market price of $5.69, GoPro looks undervalued and underpriced from an investment perspective.

While the current macroenvironment is challenging, economists predict that growth in the U.S. will rebound in 2024 as inflation ebbs further and the Fed begins to loosen monetary policy. GoPro has an effective business model and good products. Thus, GoPro's performance should improve, resulting in better earnings once the U.S. economy recovers. Furthermore, as more than 50% of GoPro's revenues come from outside the U.S., as the strength of the USD comes down, it will reflect better earnings performance in the future.

Introduction

Altria (NYSE:MO) is a well-established company in the tobacco industry with a long history of growth and resilience. The company recently released its Q4 2022 earnings report, with earnings per share coming in at $1.18, beating forecasts by $0.02. The company now projects a growth rate of 3-6% for 2023 earnings per share and has approved a $1 billion share repurchase program.

The stock's valuation and returns from dividends, share buybacks, and net income growth make it a strong investment option with a projected annual return on investment rate of ~12%. The stock price of Altria appears to be holding strong near its moving averages, making it attractively valued based on fundamentals and its stock chart.

Q4 2022 Earnings

Altria recently released its quarterly earnings report.

Earnings per share came in at $1.18, beating forecasts by $0.02 for the company. However, $5.08 billion in revenue fell short of projections by $66.37 million, or a 0.06% YoY decline. Lower net sales in the category of smokeable products was the main cause of the miss on revenue. Despite this, the adjusted diluted earnings per share grew by 8.3% to $1.18.

Compared to the adjusted diluted EPS base of $4.84 in 2022, the business projects 2023 adjusted diluted EPS in the range of $4.98 to $5.13. This indicates a growth rate of 3% to 6%. Reduced outstanding shares, increased adjusted operating cash inflow, and favorable interest expenses are the main forces behind this growth.

A fresh $1 billion share repurchase program was further approved by the company, and it is expected to be finished by the end of 2023.

Fundamentals

As its net income keeps increasing, Altria continues to show its moat. The average growth rate has been in the low single digits and has largely been attributed to price hikes. The company has not reinvested much of its earnings back into its operations. The ability to grow its bottom line without significant reinvestment is remarkable and a testament to the robustness of its products. Based on expense reductions and the support of inflation-driven price increases, it is plausible that Altria will maintain its trend of low single-digit growth in net income in the future.

As the firm prioritizes dividends and share buybacks over reinvesting earnings, the intrinsic growth and capital gains are closely tied to the stock's valuation.

The company is boosting intrinsic growth by executing share buybacks that enhance its EPS. These buybacks are currently taking advantage of a favorable valuation, and are estimated to contribute ~2.45% a year at its current earnings multiple. The remaining intrinsic growth will stem from the net income growth, which, as previously discussed, has been and is projected to remain in the low single digits.

When considering the returns from the dividend, share buybacks, and net income growth, a projected annual return on investment rate of around 12% appears plausible. This estimate is based on the assumption that the business will maintain its current earnings multiple and that dividends will be reinvested at a similar rate.

Valuation

Altria continues to demonstrate strength, as shown by its most recent quarterly financial performance. Since 2005, the stock has grown by 8.65% on average each year without seeing a decrease, which is a strong testament to the company's resilience. Analysts agree with my projection of mid-single-digit EPS growth in the upcoming years.

Altria's current trading multiple of 9.71 is significantly below its historical average of 14.46. While I do think that the stock deserves a higher multiple, I do not believe that a fair value would be its historical average multiple. The company has a substantial amount of net debt, which is currently at $22 billion.

If a standard 15 earnings multiple were applied, which would also be close to its historical average, the market capitalization of the company would be around $130 billion. Adding the net debt to the market cap, the price per share at the new 15 earnings multiple would be approximately $62. Despite the debt, the modest net income growth, combined with the dividend and share buyback payments, and the low net income growth, an annual return of around 12% should be attainable in the future.

Contrary to my previous article about Altria, I no longer believe that an earnings multiple of 15 is appropriate. This is mainly due to the need for a lower multiple to stay competitive and the significant level of net debt. However, the stock still appears very attractive, with a price of ~$62 per share being reasonable.

Stock Chart

Quick disclaimer: A technical analysis in itself is not a good enough reason to buy a stock, but combined with the company's fundamentals, it can greatly narrow your price target range when you buy.

The stock price of Altria seems to be holding strong near its 200-month moving average, just as I had previously mentioned in a past article. This trend has only become more evident following the announcement of an increased share repurchase program and the company's outstanding performance in their latest earnings report, which has lifted the stock since the announcement.

Given that the stock is still near its 50- and 200-day moving averages, I maintain the belief that it is attractively valued. The fundamentals that have been discussed only strengthen this view.

Final Thoughts

Altria is a strong company with a strong history of growth. The primary source of expected capital gains from investing in Altria will come from its dividend payments, which are tied to the stock's valuation. Share buybacks are also boosting intrinsic growth by enhancing its earnings per share. The company is expected to maintain a low single-digit growth rate in net income in the future, which combined with dividends and share buybacks, should result in an annual return on investment rate of around ~12%.

Altria is currently trading at a lower multiple compared to its historical average, which I believe largely is due to its significant level of net debt. Despite this, the stock still appears attractive, and its strong support near its 200-month moving average, combined with the fundamentals of the company, make it a strong investment opportunity.

Based on the company's fundamentals and attractive valuation, I adjust my price target to ~$62 per share and supply it a "buy" rating.