Fitbit Shares Drop 21 Percent On Adjusted Financial Projections

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Fitbit reported Q4 and annual results this week. Quarterly revenue grew 92 percent to $712, adjusted EPS $0.35 vs. $0.21, beating expectations on both. Profits also grew, totaling at $64 million, up 64 percent from the same quarter last year. Analyst consensus estimates had forecasted revenue of just $648 million and EPS of $0.25, so Fitbit beat both by a wide margin and demonstrated strong profit growth. Despite the positive financial results, shares plummeted in after hours trading on Monday, and continued to fall through both Tuesday and early trading Wednesday after the company adjusted its 2016 earnings and revenue forecast sharply downward.

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Fitbit projected a Q1 revenue of between $420 and $440 million, falling short of analyst expectations of $483 million. More concerning, however, is the projected quarterly earnings of $0.00 to $0.02 per share, falling far below analyst expectations of $0.23 per share. The lowered earnings projections reflect one time costs associated with launching two new products, the Alta and Blaze. Fitbit is absorbing manufacturing and distribution costs, along with marketing costs, as it prepares for its global launch for the new devices. The company based its decision to issue lowered guidance on the impact those costs will have on its Q1 financial performance. In its earnings call, CFO William Zerella explains, “The channel is draining their inventory levels of Charge, and we stop shipping Charge in Q1. We’re transitioning in the channels preparing for Alta… our guidance assumes that we will be getting initial shipments out of Alta into the channel, but that because of the timing that no reorders will hit revenue in Q1.” Because Fitbit expects no reorders for either its Alta or Blaze units from distributors during Q1, the company is expecting significantly reduced earnings.

Despite lowered quarterly guidance, Fitbit is forecasting strong full-year projections. The company expects revenue between $2.4 and $2.5 billion and earnings between $1.08 and $1.20, largely meeting analyst expectations. Fitbit continues to dominate the wearables market, but on Wall Street the company has struggled, with share prices falling 58 percent since its IPO in June 2015.


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