Fitbit Drops as Wearables Maker Plans Further Stock Offering

Breaking Down Fitbit's Robust Third-Quarter Growth
  • Company to sell 7 million shares, unlock employee stock
  • News overshadows earnings, revenue that beat estimates

Fitbit Inc., the maker of wearable devices that went public in June, dropped in extended trading after announcing plans to sell additional shares and lift restrictions on employee stock sales.

The shares declined as much as 9.9 percent in late trading after closing at $40.80 in New York. The stock-sale announcement overshadowed third-quarter earnings and revenue that beat analysts’ estimates.

Fitbit has proposed to sell 7 million shares and certain stockholders are planning to sell 14 million shares, the company said Monday in a statement. The selling stockholders will also grant underwriters a 30-day option to purchase as much as 3.15 million more shares. The proceeds from the company’s share sale will go toward generating more capital, as well as research and development, sales and marketing, Fitbit said.

Underwriters of Fitbit’s June initial public offering additionally agreed to release restrictions on the sale of about 2.3 million shares by employees and consultants, effective Wednesday, the company said in a separate statement. That lockup -- on as much as 10 percent of Fitbit’s common stock, options and restricted stock units -- had been set to expire after the company’s fourth-quarter earnings were released.

Through Monday’s close, Fitbit stock had more than doubled since its IPO. Strong sales of new products such as the Fit Surge, Charge and Charge HR are among the reasons the company on Monday raised its profit forecast for the year, Fitbit Chief Executive Officer James Park said.

“This past quarter we’ve made a lot of key software updates and improvements to those devices, so we feel pretty good about continued momentum and consumer demand,” he said in a interview. “We’ve invested a lot in sales and marketing, building up consumer awareness, not only in the U.S., but in a lot of key international markets as well.”

The stock has doubled since its IPO
The stock has doubled since its IPO

Fitbit has dominated the wearables market, though competition is increasing from companies including Apple Inc., Samsung Electronics Co., Xiaomi Corp. and Jawbone Inc. Apple, which released its Watch earlier this year, recently took the No. 2 position in the worldwide wearables market, shipping 3.6 million devices in the second quarter, while Fitbit sold 4.4 million, according to International Data Corp.

“We haven’t really seen any material impact from the Apple Watch on our sales and I think our Q3 results speak to it,” Park said. “We’re continuing to see strong demand and I think that’s reflective of our view that the Apple Watch and Fitbit products are really targeting two very different consumer segments.”

Third-quarter profit was 24 cents a share, excluding some items, San Francisco-based Fitbit said. Analysts on average had expected 10 cents, according to data compiled by Bloomberg. Revenue jumped to $409.3 million from $152.9 million. Analysts had projected $358.6 million.

Fitbit forecast annual profit, excluding some items, of 92 cents to 96 cents a share on revenue of $1.77 billion to $1.8 billion. The company previously projected profit of 69 cents to 77 cents a share on revenue of 1.6 billion to $1.7 billion.

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