Fitbit (FIT) Q4 Loss Greater Than Estimated, Revenues Miss

Fitbit, Inc. (NYSE:FIT) reported fourth-quarter 2017 adjusted loss of 2 cents per share, which was greater than the Zacks Consensus Estimate. Also, the top line missed the Zacks Consensus Estimate by 16 million.

The fourth-quarter results were impacted by weak demand for the company’s health and fitness trackers. Also, increasing competition from Apple (NASDAQ:AAPL), Samsung Electronics (KS:005930), Xiaomi and Garmin impacted its results.

Following the weaker-than-expected results in the fourth quarter, Fitbit’s share price plunged 13% in after-hours trading.

In the quarter, Fitbit sold 5.4 million devices, up 50% sequentially. Repeat purchases contributed 37% to activations. New products launched in the last 12 months, namely Fitbit IonicT, Alta HR, and Fitbit Aria 2 and accessory Fitbit Flyer, contributed 36% to revenues.

Management expects lower revenues from its newly launched products such as Ionic and Alta HR, and thereby gave a weak first-quarter revenue guidance.

We, however, note that Fitbit’s growth has been hampered by the popularity of smartwatches in the fitness wearable category, influx of new wearables, increasing competition from Apple (AAPL), lack of upgrades among existing users and lackluster growth in the Asia-Pacific region.

The impact of these headwinds has been significant on the stock, which significantly underperformed the industry in the last 12 months. While the industry has gained 21.5%, the stock has lost 21.2%.

Let’s check out the numbers in detail.

Revenues

Fitbit reported revenues of $571 million, down 0.5% year over year but up 45.4% on a sequential basis. The top line was on the lower end of management’s guidance of $570-$600 million and missed the Zacks consensus mark of $587 million.

The strength in almost all regions led to the sequential increase in revenues.

The average selling price decreased 3% sequentially but increased 20% from the prior-year quarter to $102 per device in the fourth quarter.

Geographically, revenues from the United States accounted for 58% of fourth-quarter revenues, EMEA brought in 27%, Americas excluding the United States contributed 8% and the remaining 7% came from Asia Pacific.

On a sequential basis, all the regions depicted an increase. However, on a year-over-year basis, revenues from the United States decreased 7.8%, while the same from all other regions increased.

Margins and Net Income

Non-GAAP gross profit for the third quarter was $252.5 million. Gross margin was 44.2%, up 2,180 bps year over year but down 100 bps sequentially.

Pro-forma net loss was $4.7 million or loss per share was 2 cents against net loss of $125.7 million or loss per share of 56 cents in the year-ago period.

Balance Sheet and Cash Flow

In the fourth quarter, cash and cash equivalents were $342.0 million compared with $280.7 million in the third quarter.

Accounts receivables were $406.0 million compared with $261.0 million in the previous quarter. Inventories were $123.9 million compared with $138.8 million in the previous quarter.

Cash flow from operations was $52 million and free cash flow was $25 million in the fourth quarter.

Guidance

For the first quarter of 2018, Fitbit expects revenues in the range of $240-$255 million, representing a decline of approximately (20%) to (15%) year over year. The Zacks Consensus Estimate for the upcoming quarter is pegged at $339.1 million.

The company expects non-GAAP loss per share in the range of 21 cents to 18 cents. The Zacks Consensus Estimate is pegged at a loss of 11 cents per share. It expects the non-GAAP tax rate to be approximately 40%.

For full-year 2018, Fitbit expects revenues of $1.5 billion. The Zacks Consensus Estimate for revenues is pegged at $1.72 billion.

Fitbit, Inc. Price, Consensus and EPS Surprise

Fitbit, Inc. Price, Consensus and EPS Surprise | Fitbit, Inc. Quote

Zacks Rank and Stocks to Consider

Fitbit has a Zacks Rank #4 (Sell). A few better-ranked stocks in the technology sector are PetMed Express (NASDAQ:PETS) , Teradyne (NYSE:TER) and Mercadolibre (NASDAQ:MELI) . While PetMed and Teradyne sport a Zacks Rank #1 (Strong Buy), Mercadolibre carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings per share growth rate for PetMed, Teradyne and Mercadolibre is projected to be 10%, 12% and 25%, respectively.

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