Technology

Fitbit (FIT) Down 1% 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 1% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important drivers.

Fitbit Surpasses Earnings and Revenue Estimates in Q4

Fitbit, Inc. reported fourth-quarter 2018 adjusted earnings of 14 cents per share, surpassing the Zacks Consensus Estimate by 7 cents.

The company’s total revenues came in at $571.2 million, up 0.1% year over year and 45.1% on a sequential basis. The top line was ahead of management’s guidance of $560 million and surpassed the consensus mark of $567.7 million.

Strong sales gains from its smartwatch devices and trackers aided growth in the quarter.

During the quarter, Fitbit sold 5.6 million devices, up 3% year over year. New products launched over the past 12 months, namely Fitbit Versa, Fitbit Charge 3 and Fitbit Ace, contributed 79% to the company’s revenues.

The average selling price (ASP) decreased 2% from the prior-year level to $100 per device in the fourth quarter.

Management remains optimistic about smartwatch sales and expects to increase its market share in this space in the coming quarters.

Let’s check out the numbers in detail.

Top-Line Details

Geographically, revenues from the United States accounted for 58% of fourth-quarter revenues, EMEA brought in 26%, Americas excluding the United States contributed 7% and the remaining 9% came from Asia Pacific.

On a sequential basis, all the regions depicted an increase. However, on a year-over-year basis, revenues from the Asia Pacific increased, while the same from all other regions marked a decline.

Margins and Net Income

Non-GAAP gross profit in the fourth quarter was $221 million. Gross margin was 38.7%, down 550 basis points year over year. Gross margins were negatively impacted by the change in mix toward smartwatches, partially offset by improved warranty costs.
 
Non-GAAP operating expenses were 184.6 million versus 244.4 million in the year-ago quarter.

Pro-forma net income was $36.3 million or earnings per share were 14 cents against net loss of $4.7 million or loss per share of 2 cents in the year-ago period.

Balance Sheet and Cash Flow

Cash and cash equivalents & Marketable securities were $723.4 million compared with $623.3 million in the third quarter.

Accounts receivables were $414.2 million compared with $326 million in the last reported quarter.

Cash flow from operations was $108.3 million and free cash flow totaled $95.6 million in the fourth quarter.

Guidance

For first-quarter 2019, Fitbit expects revenues in the range of $250-$268 million, reflecting an increase of 1-8% on a year-over-year basis. 

The company expects non-GAAP gross margin to be approximately 34-35% and non-GAAP basic net loss per share in the range of ($0.24) to ($0.22). 

For full-year 2019, Fitbit expects revenues in the range of $1.52-$1.58 billion. 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -38.1% due to these changes.

VGM Scores

Currently, Fitbit has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Fitbit has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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