Fitbit (FIT) Down 4.5% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Fitbit (FIT). Shares have lost about 4.5% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Fitbit due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Fitbit Q4 Loss Wider Than Estimated, Revenues Lag

Fitbit, Inc. reported fourth-quarter 2019 adjusted loss of 12 cents per share, wider than the Zacks Consensus Estimate of a loss of 4 cents.

The company’s total revenues came in at $502.1 million, down 12.1% year over year but up 44% on a sequential basis. The figure also missed the consensus estimate by 5.99%.

On Nov 1, 2019, Fitbit entered into a definitive agreement to be acquired by Google (NASDAQ:GOOGL) for a total amount of approximately $2.1 billion. Fitbit stockholders have approved the transaction in January. The deal is expected to close in 2020, subject to other customary closing conditions. This move will likely help the company to accelerate innovation in the wearables category.

Let’s check out the numbers in detail.

Top-Line Details

During the fourth quarter, Fitbit sold 6 million wearable devices, up 8% year over year.

The average selling price decreased 19% from the prior-year level to $81 per device in the fourth quarter.

Geographically, revenues from the United States accounted for 55% of fourth-quarter revenues and decreased 16% year over year.

On a year-over-year basis, international revenues declined 7% to $226 million. Americas, excluding the United States, declined 2% to $44 million and APAC was down 40% from the prior-year quarter to $29 million. However, EMEA was up 2% year over year to $153 million.

Operating Results

Non-GAAP gross margin was 26.3%, down 1,240 basis points year over year. Gross margins were negatively impacted by an unfavorable product mix, lower warranty benefits and a reduction in average selling price.

Per the press release, operating expenses were 237.1 million, up 15.1% from the year-ago quarter. As a percentage of sales, research & development, sales & marketing, and general & administrative expenses increased from the year-ago quarter.

Balance Sheet and Cash Flow

Cash and cash equivalents & marketable securities were $518.5 million compared with $502.2 million in the third quarter.

Accounts receivables were $435.3 million compared with $345.6 million in third-quarter 2019.

Cash flow from operations was $28.3 million and free cash flow totaled $18 million in the fourth quarter.

Guidance

The company did not provide any guidance for the first quarter due to the pending acquisition by Google.

How Have Estimates Been Moving Since Then?

Estimates revision followed a downward path over the past two months. The consensus estimate has shifted -14.29% due to these changes.

VGM Scores

At this time, Fitbit has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Fitbit has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.