Fitbit Cutting 6% of Workforce as Results Miss Estimatesby
Shares tumble as much as 13 percent to lowest price ever
Fitness tracker has struggled to maintain momentum for gadget
Fitbit Inc. will eliminate about 110 jobs, or 6 percent of its workforce, and said fourth-quarter results won’t meet analysts’ estimates amid declining demand for its fitness trackers.
Fitbit expects to report that it sold 6.5 million devices in the quarter ended Dec. 31 2016, with revenue of $572 million to $580 million, the company said in a statement Monday. Analysts were expecting $736.4 million, on average. Fitbit forecasts revenue in 2017 of $1.5 billion to $1.7 billion. Analysts had estimated $2.38 billion. Official results are due to be released Feb. 22.
The shares fell the most in almost three months, tumbling as much as 14 percent to $6.17 in New York. That’s the lowest intraday price ever for the stock, which has dropped more than 50 percent in the past 12 months.
Fitbit has struggled to maintain momentum for its watches, which were initially popular as a way to track steps and encourage exercise, but then quickly relegated to gadget status. At the same time, they’re facing competition from Apple Inc.’s watch and cheaper Chinese models. Chief Executive Officer James Park has been trying to turn Fitbit into a digital health company that relies less on consumers and sells a range of technology to the health-care industry. But that strategy will take years to unfold.
"The magnitude of the miss is surprising," said Joe Wittine, an analyst at Longbow Research. "This is nothing that Fitbit screwed up on necessarily, it’s just that like all consumer products, eventually you hit maturity. The question is how does Fitbit respond here."
The company said it’s taking “clear steps” to diversify its revenue stream, including expanding into the smartwatch category. Fitbit recently acquired some software assets from startup Pebble and payments startup Coin, which could help it add features that would rival Apple’s watch.
Fitbit’s future depends on its ability to develop a smartwatch, but a broader product that includes technology from its recent acquisitions will take time, according to Wittine. 2017 will likely be another "painful year" for Fitbit as it works to develop a new product while demand for its fitness trackers reaches saturation, he said.
Fitbit’s co-founders, Chief Executive Officer James Park and Chief Technology Officer Eric Friedman said they would reduce their 2017 salary to $1.
The company slashed its sales forecast in November for the crucial holiday season when retail companies generate most of their revenue. Earlier this month, a report by Cleveland Research said Fitbit halted production in mid-December because the devices were piling up at retailers and suppliers amid disappointing sales.
“To address this reduction in growth and what we believe is a temporary slowdown and transition period, we are taking clear steps to reduce operating costs,” Fitbit said in the statement.
The company said it’s conducting a reorganization of its business to create a more efficient operating model. That effort will cost about $4 million in the first quarter of 2017.