Fitbit Tops Estimates in First Post-IPO Report; Margins Narrow

Why Fitbit Is Dominating the Wearable Market

Fitbit Inc. sales and profit topped analysts’ estimates in its first report following an initial public offering, a sign that the company’s fitness trackers are weathering competition in the increasingly crowded wearables market.

Second-quarter revenue more than tripled to $400.4 million, San Francisco-based Fitbit said Wednesday in a statement. Analysts on average projected $319 million, according to data compiled by Bloomberg. Profit before certain items was 21 cents a share, more than the 8 cents analysts predicted.

Gross margin, a measure of profitability, narrowed to 47 percent in the second quarter from 51 percent a year earlier, sending the shares lower after the report. The stock dropped as much as 12 percent in extended trading. The lower margin raised concerns that the company may be spending more on marketing, cutting prices or using more expensive parts, said Dougherty & Co. analyst Charles Anderson.

“It’s not clear why they went down on gross margin,” said Anderson, who’d been modeling for 50 percent.

The company, which dominates the market for fitness bands that monitor health data such as activity and sleep patterns, said it sold 4.5 million devices in the quarter.

In the first quarter, Fitbit’s market share in wearable devices was 34 percent, according to researcher IDC. While Fitbit remained the biggest seller, its share declined from 45 percent a year earlier. China-based Xiaomi Corp. soared from nothing to 25 percent, on the strength of cheaper devices starting at $15, compared with Fitbit’s starting price of about $60 for a clip-on tracker. Market share for other rivals such as Jawbone Inc., Garmin Ltd. and Samsung Electronics Co. also fell from the first quarter of 2014.

Fitbit shares slipped as low as $45.43 following the report. They rose 3.9 percent to $51.64 at the close in New York. The company went public on June 17 at $20 a share.

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