Photographer: Chris Ratcliffe/Bloomberg

Fitbit Falls to Lowest Ever After Forecasts Miss Estimates

  • Wider introduction for Blaze, Alta will raise expenses
  • Company says new products will help maintain market lead

Fitbit Inc. tumbled to the lowest level since its initial public offering after forecasts missed estimates and analysts downgraded the stock.

The shares dropped 21 percent to $13.08 at the close of trading in New York on Tuesday, bringing the loss for this year to 56 percent. Stifel Nicolaus & Co, Pacific Crest Securities, Robert Baird & Co., and Piper Jaffray & Co. cut their ratings on the stock.

“Given the limited visibility to new product uptake and revenue growth, we see aggressive R&D spending as adding risk,” Jim Duffy, an analyst at Stifel Nicolaus, wrote in a note. He cut the stock to hold “given what we view to be a sudden change in operating model strategy that heightens risk.”

The San Francisco-based device-maker on Monday forecast revenue and profit in the current quarter that fell short of analysts’ estimates, citing higher costs and slower-than-expected sales from the rollout of its newest products. Fitbit is betting that global marketing campaigns to introduce its newest wearable health-tracking devices, including an inexpensive smartwatch, will help maintain its dominance in an ever-more competitive industry.

Fitbit has been the leading seller of wearable fitness trackers, but competition from the likes of Apple Inc., Samsung Electronics Co. and Xiaomi Corp. may blunt the company’s growth. Fitbit’s market share fell to 30 percent in the fourth quarter of 2015 from 44 percent a year earlier, according to IDC. In addition to rivalry from the tech giants, companies such as Fossil Group Inc. and Under Armour Inc. have developed connected fitness devices.

“This has been a pretty competitive category for a while,” Chief Executive Officer James Park said. “The story will play out, but in the short term we can’t control the share price.”

GoPro Comparison

Fitbit has often been lumped in with GoPro Inc., the maker of action cameras, as one-trick pony companies, but Park disputed the comparison.

“Just because we sell hardware doesn’t mean we’re the same type of company,” Park said. “Our addressable market is much bigger. It’s literally everyone on Earth that has a need to use technology to improve their health.”

Sales in the first quarter will be in the range of $420 million to $440 million, the San Francisco-based company said in a statement. That compared with the average analyst projection of $485 million, according to data compiled by Bloomberg. Earnings per share, excluding certain items, will be zero to 2 cents, compared with the average analyst estimate of 23 cents.

New Products

The company said it sold 8.2 million connected health and fitness devices in the fourth quarter of 2015. Fitbit has been expanding its lineup and now sells eight products, including two recently announced models, Alta and Blaze, a smartwatch that features on-screen workouts and a connected GPS. Preorders for the two new models exceeded internal forecasts, and the Blaze was ranked second last week in Amazon’s best-selling smartwatches over $100, the company said.

The timing of shipments of the new products, particularly Alta, may result in the majority of reorders pushing into the second quarter of 2016, the company said. The media campaign to promote Alta and Blaze will drive up marketing expenses in the quarter. Manufacturing costs also will rise to meet expected demand, which is anticipated to affect gross margins, the company said. Non-GAAP gross margin is projected at 46.5 percent in the quarter.

“The competition has always been there,” said Shebly Seyrafi, an analyst at FBN Securities, who has an outperform rating on Fitbit. “They’re going to have to live with a lot of that competition.”

The forecast contrasted with fourth-quarter profit and sales that topped analysts’ estimates. Earnings excluding certain items were 35 cents a share while revenue almost doubled to $711.6 million, Fitbit said. Analysts on average projected $648 million in sales and profit of 25 cents a share.

The decline in Fitbit’s shares is tied more to the expiration of a lockup on a secondary offering and a selloff in technology stocks than the underlying business, Seyrafi said.

Shares also took a hit last month after the introduction of Blaze. Betty Chen, an analyst at Mizuho Securities USA Inc., said investors feared it would compete with the Apple Watch as an inferior product. But Chen said Fitbit focused on a few features for the Blaze to keep the price point around $200, a cheaper option than the Apple Watches.

“While we certainly do not want to discount smartwatches, Apple Watches in particular, consumers are telling us they find very different needs for those devices, and for now they find some smartwatches in the market very costly,” said Chen, who has a buy rating on Fitbit.

Before it's here, it's on the Bloomberg Terminal.