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Fitbit Fumbles

Posted on Monday, Dec 5th 2016

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According to IDC, shipments of wearable devices grew 26.1% in the second quarter of 2016 to reach 22.5 million. Fitbit (NYSE:FIT) dominates the market with a 25.4% share while Xiaomi, Apple, and Garmin follow with 14%, 7% and 6.9%, respectively.

Fitbit’s Financials
For the third quarter, Fitbit reported revenue of $504 million, up 23%. Net income was $26 million or $0.11 per share. Non GAAP net income was $46 million or $0.19 per share. Analysts were expecting earnings of $0.19 per share on revenue of $506.6 million.

It saw a 11% growth in unit sales and 11% increase in average selling price. GAAP gross margin was flat at 47.8%.

By region, revenue from the US grew 33%, EMEA grew 64%, APAC declined by 45%, and Other Americas increased by 7%. U.S. comprised 72% of third quarter revenue, EMEA 16%, APAC 7%, and Other Americas 5%.

For the fourth quarter of 2016, Fitbit expects revenue between $725 million and $750 million, representing growth of 2%-5%, with non-GAAP earnings per diluted share in the range of $0.14 to $0.18. This was way below analyst estimates of $0.75 per share on revenue of $983.3 million. After the disappointing company forecast, analysts have now revised their estimates to $0.17 per share on revenue of $742.2 million.

For the full year 2016, it expects revenue between $2.320 billion and $2.345 billion, representing growth of 25%-26%, with non-GAAP earnings per diluted share in the range of $0.55 to $0.59.

Fitbit’s Acquisitions and Competition

In May 2016, Fitbit acquired wearable payment assets of Coin, a Silicon Valley consumer electronics and financial technology company. The deal includes key personnel and intellectual property specific to Coin’s wearables payment platform and excludes smart payment products, such as Coin 2.0.

The acquisition is expected to accelerate Fitbit’s ability to develop an active NFC payment solution that could be embedded into future Fitbit devices, broadening its smart capabilities.

Fitbit faces increasing competition from Chinese Xiaomi Mi Bands and Lifesense’s Mambo bands on the lower end and from Apple and Garmin on the higher end. Rather than the Apple Watch, it is the low cost bands from Xiaomi and Lifesense that Fitbit has to worry about. Apple had in fact recorded a 57% decline in shipment volumes in Q2. While it still dominates the market, aggressive competition has seen its market share drop from 38% in 2014 to about 25% in Q2 2016.

Fitbit is now reportedly in talks to acquire smartwatch maker Pebble, whose market share has fallen from 8.6% in 2015 to 3.2% in 3Q 2016. In May, Pebble revealed three new devices: the Pebble Core, the Pebble 2 and the Pebble Time 2. Pebble has more than 13,000 apps on its platform and analysts expect the acquisition to help Fitbit tap into its ecosystem.

Fitbit’s New Offerings

On the corporate wellness front, Fitbit has entered into a partnership with Virgin Pulse, one of the leading corporate wellness technology companies. It also added new customers including Pitney Bowes and Dr. Pepper/Snapple Group.

Fitbit recently introduced two new products, Charge 2 and Flex 2. It also introduced Blaze and Alta gold series and new accessories for each device.

However, Fitbit faced some manufacturing problems ramping up Flex 2, which affected its Q4 outlook. Analysts estimate that there was about $50 million revenue shortfall due to supply shortfall of Flex 2.

Another factor for its disappointing revenue forecast was the timing of the shipment of Charge 2. The company said it shipped more Charge 2 devices to the retail channel than it originally thought it would during the third quarter.

Given the increasing competition, Fitbit cannot afford such fumbles. Its stock tumbled 30% after the very disappointing outlook.

Its stock is currently trading around $8.14 with a market cap of about $1.8 billion. Its 52-week range is $8.12 – $34.68. Several analysts including Citi, Morgan Stanley, SunTrust, and Wedbush have downgraded the stock.

Photo Credit: Mike Mozart/Flickr.com

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