Fitbit Inc (FIT) Announces 3Q:16 Results: Shares Fall 30%

fit2Fitbit Inc (NYSE:FIT) reported revenue of $504 million, GAAP diluted net income per share of $0.11, non-GAAP diluted net income per share of $0.19, GAAP net income of $26 million, and Adjusted EBITDA of $81 million, for its third quarter of 2016.

“I am pleased to see positive reception for our new products launched in the third quarter. We are attracting new customers while our existing ones are upgrading their devices, underscoring the strength of the Fitbit brand and growing relevancy of wearables as part of consumers’ everyday lives,” said James Park, Fitbit co-founder and CEO. “We continue to grow and are profitable, however not at the pace previously expected. We are focused on improving the utility of our products and integrating more deeply into the healthcare ecosystem and believe we can leverage our brand and community to unlock new avenues and adjacencies of growth.”

Third Quarter 2016 Financial Highlights

  • Revenue increased 23% year-over-year to $504 million
  • U.S. comprised 72% of Q316 revenue; EMEA 16%, APAC 7%, and Other Americas 5%
  • U.S. revenue grew 33% year-over-year; EMEA 64%, APAC (45)%, and Other Americas 7%
  • GAAP net income of $26 million, non-GAAP net income of $46 million
  • GAAP diluted net earnings per share (EPS) of $0.11, non-GAAP EPS of $0.19
  • Adjusted EBITDA of $81 million
  • New products – Fitbit Blaze TM, Alta TM, Fitbit Charge 2 TM, Fitbit Flex 2 TM and related accessories – comprised 79% of Q316 revenue, compared to 54% in Q216.
  • GAAP and non-GAAP gross margin were flat year-over-year at 48% and up 600 basis points sequentially. Higher estimated warranty claims for legacy products were offset by lower costs on certain replacement units.
  • GAAP operating expenses increased by 52% and non-GAAP operating expenses increased by 46% primarily driven by a 93% increase in GAAP and 91% increase in non-GAAP R&D spend. Sales and Marketing costs remain the largest expense line item with GAAP and non-GAAP costs rising 23%. The expense in R&D and sales and marketing was to bolster innovation and growth. The bulk of the expense came from headcount. R&D headcount increased 105% year-over-year and represented approximately 60% of our workforce.

Third Quarter 2016 and Recent Fitbit Operational Highlights

  • 11% growth in unit sales, 11% rise in average selling price
  • 60% of the activations in the quarter came from new customers buying new products, 40% from customers who made repeat purchases of new products. Of the repeat customers, approximately 20% were reactivations (customers who were inactive for 90 days or greater).
  • Corporate wellness: Expanded reach by signing partnership with Virgin Pulse, one of the leading corporate wellness technology companies; added new customers including Pitney Bowes and Dr. Pepper/Snapple Group.
  • Substantially completed the global installation of new display materials in many retail locations.
  • Introduced two new products, Charge 2 and Flex 2, and associated accessories; introduced a new accessories partnership with Simply Vera Vera Wang for Kohl’s.
  • Introduced Blaze and Alta gold series and new accessories for each device.
  • Launched new software feature Adventures, providing a virtual, personal challenge experience for Fitbit users.

Business Outlook

  • Full year 2016:
    The company expects revenue between $2.320 billion and $2.345 billion, representing growth of 25%-26%, with non-GAAP earnings per diluted share in the range of $0.55 to $0.59, and a non-GAAP tax rate of approximately 34%.
  • Fourth quarter 2016:
    The company expects revenue between $725 million and $750 million, representing growth of 2%-5%, with non-GAAP earnings per diluted share in the range of $0.14 to $0.18, and a non-GAAP tax rate of approximately 33%. (Original Source)

Shares of Fitbit are falling nearly 30% to $8.90 in after-hours trading Wednesday.

On the ratings front, Fitbit has been the subject of a number of recent research reports. In a report released yesterday, Oppenheimer analyst Andrew Uerkwitz assigned a Buy rating on FIT, with a price target of $25, which represents a potential upside of 92% from where the stock is currently trading. Separately, on October 31, Piper Jaffray’s Erinn Murphy reiterated a Hold rating on the stock and has a price target of $14.

According to, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Andrew Uerkwitz and Erinn Murphy have a yearly average return of 6.9% and a loss of 6.7%, respectively. Uerkwitz has a success rate of 51% and is ranked #348 out of 4173 analysts, while Murphy has a success rate of 39% and is ranked #3946.

Overall, one research analyst has rated the stock with a Sell rating, 4 research analysts have assigned a Hold rating and 11 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $22.20 which is 70% above where the stock opened today.

Fitbit, Inc. engages in the development of wearable device which tracks data of an individual’s health. It offers products which can track a person’s activities, such as calories burned, sleep quality, steps, and distance. The data collected allows an individual to monitor their progress towards their own personal goals. 

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