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Why Is Fitbit (FIT) Down 12.6% Since the Last Earnings Report?

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A month has gone by since the last earnings report for Fitbit, Inc.FIT . Shares have lost about 12.6% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it 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 catalysts.

Fitbit Q1 Loss in Line with Expectations, Revenues Top

Fitbit reported first-quarter 2017 adjusted loss (excluding all one-time items but including stock-based compensation) of 25 cents per share, which was in line with the Zacks Consensus Estimate. Revenues beat the consensus mark by $12.5 million.

Revenues

Fitbit reported revenues of $298.9 million, which was down 40.8% year over year and 40.7% on a sequential basis. The year-over-year decline in revenues was due to weaker demand and foreign exchange headwinds.

The top line however exceeded the guidance of $270 million to $290 million and the consensus mark of $277.5 million.

In the quarter, Fitbit sold 3 million devices and repeat purchases contributed 36% to activations.

The company launched Fitbit Alta HR, Sleep Stages, deep and REM sleep and Sleep Insights. It also rolled out a new Community section in the Fitbit app that encompass a Feed feature that increases engagement and offer users new ways of connecting with closed ones or groups.

Geographically, revenues from the United States accounted for 57% of the first quarter revenues; EMEA brought in 29%, Americas excluding the U.S contributed 7% and the remaining 7% came from Asia-Pacific.

First-quarter revenues from the EMEA jumped 15.4%. Asia-Pacific revenues recorded a significant decrease of 61.5%. In the U.S. and the Americas excluding the U.S., revenues decreased 51.5% and 9.1% year over year, respectively.

Margins and Net Income

Gross profit for the first-quarter was $119.7 million. Gross margin was 40%, down 783 basis points (bps) sequentially and 632 bps year over year.

Gross margin was negatively impacted by a change in mix and excess component materials and manufacturing capacity.

Pro-forma net loss was $59.8 million or loss per share of 25 cents compared with loss of $140.8 million or loss per share of 63 cents in the previous quarter. In the year-ago period, the company had recorded income $11.4 million or earnings of 3 cents a share.

Balance Sheet and Cash Flow

Cash and cash equivalents at the end of the first quarter was $374.3 million compared with $301.3 million at the end of the fourth quarter.

At the end of the quarter, accounts receivables were $194.8 million compared with $477.8 million in the previous quarter. Inventories were $200.3 million compared with $230.4 million in the previous quarter.

Guidance

For the second quarter of 2017, Fitbit expects revenues to remain in the range of $330 million to $350 million. The company expects non-GAAP loss per share to be in the range of 14 cents to 17 cents. It expects non-GAAP tax rate to be approximately 43%.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.

Fitbit, Inc. Price and Consensus

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

VGM Scores

At this time, the stock has a great Growth Score of 'A', though it is lagging a lot on the momentum front with a 'C'. Following the exact same course, the stock was allocated also a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

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

Based on our scores, the stock is more suitable for growth investors than those looking for value and momentum.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline 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.


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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