Fitbit Inc (NYSE:FIT) reported revenue of $574 million, GAAP basic net loss per share of ($0.65), non-GAAP basic net loss per share of ($0.56), GAAP net loss of ($146.3) million, and Adjusted EBITDA loss of ($144.2) million, for its fourth quarter of 2016.
For the full-year 2016, Fitbit reported revenue of $2.17 billion, GAAP basic net loss per share of ($0.47), non-GAAP basic net loss per share of ($0.12), GAAP net loss of ($102.8) million, and Adjusted EBITDA of $30.0 million.
“Our ten-year history of building this category, coupled with our powerful brand and engaged global community gives us confidence we are making the right investments to support our vision and drive long-term success,” said James Park, Fitbit co-founder and CEO. “We will leverage our leadership position, recently acquired talent and IP, and the valuable data we collect to improve demand and continue to set the pace of innovation for the industry through more personalized experiences, deeper insights and guidance, expansion into new categories and deeper integration within the healthcare system.”
Fitbit is taking direct action to reduce operating costs, improve efficiencies, and strengthen performance while maintaining necessary investment to drive future growth and maintain its global leadership position:
- Reduced 2016 exit operating expense run rate by $200 million. Conducted a reorganization, including a reduction in force, that impacts 107 positions or 6% of the global workforce.
- Entry into the smartwatch category to invigorate and capture a large addressable market by leveraging Fitbit’s brand and vast experience delivering a best-in-class health and fitness experience on the wrist.
- Continuing to scale the business globally, including leveraging a new engineering center in Romania gained through the recent acquisition of assets of Vector Watch, enabling the company to efficiently serve the global business and further expand its presence in EMEA.
- Restructuring accessories strategy, choosing to partner and license rather than managing production and inventory directly.
- Hiring a new executive vice president of operations, Jeff Devine, to manage overall operations, customer service, and quality. Jeff brings more than 25 years of operating experience scaling global technology brands including Cisco, Nokia, and Hewlett Packard.
Fourth Quarter and Full Year 2016 Financial Summary
Fourth Quarter 2016 Financial Highlights
- Sold 6.5 million connected health and fitness devices.
- U.S. revenue contracted 28%, EMEA revenue grew 58%, APAC revenue contracted 56%, and Other Americas revenue contracted 12%.
- New products Fitbit Charge 2™, Alta™, Fitbit Blaze™, and Fitbit Flex 2™ represented 96% of revenue.
- GAAP gross margin was 22.1%, and non-GAAP gross margin was 22.4%, negatively impacted by the following charges:
- Write down of tooling equipment and component inventory of $78 million;
- Increased rebates and channel pricing of promotions of $42 million recorded as a reduction in revenue;
- Increased return reserves of $41 million due to greater channel inventory; and
- Increased warranty reserves for legacy products of $17 million.
- GAAP operating expenses represented 54.4% of revenue, non-GAAP operating expenses represented 49.6% of revenue.
Full-Year 2016 Financial Highlights
- Sold 22.3 million connected health and fitness devices.
- Revenue increased 17%, GAAP gross profit decreased 6%, non-GAAP gross profit decreased 5%, GAAP net income decreased 159%, non-GAAP net income decreased 110%, and Adjusted EBITDA decreased 92%.
- U.S. revenue grew 11%, EMEA revenue grew 86%, APAC revenue contracted 26%, and Other Americas revenue grew 19%.
- U.S. comprised 71% of revenue; EMEA 18%, APAC 6%, and Other Americas 5%.
- New products Fitbit Charge 2, Alta, Fitbit Blaze, and Fitbit Flex 2 represented 70% of revenue.
- Twenty-six percent of all activations in 2016 came from repeat customers; of the repeat customers, 20% were reactivated. Total year-end registered device users were 50.2 million.
- Cash, cash equivalents, and marketable securities totaled $706 million compared to $664 million as of December 31, 2015.
Fourth Quarter 2016 and Recent Fitbit Operational Highlights
- Active users grew 37% to 23.2 million from 16.9 million at year end 2015; largest social fitness network as of year-end.
- Charge 2 was the #1 selling connected health and fitness device as of the end of Q4, based on units, according to NPD and each of the products launched in 2016 have a 4-star rating on Amazon.
- Acquired assets from Pebble for $23 million and Vector Watch for $15 million, comprised of intellectual property and talent.
- Including the acquisitions, headcount ended the year at 1,753 employees, with 61% in research and development.
- In Digital Health, added key partnerships with leading companies, including Medtronic, and an integration with one of the largest U.S. health plans, demonstrating the early potential of our devices in different healthcare settings.
Full Year 2017 Guidance
- Revenue to be in the range of $1.5 billion to $1.7 billion with non-GAAP gross margins in the range of 42.5% to 44.0%. The company reduced 2016 exit operating expense run rate by $200 million to an operating expense for 2017 of approximately $850 million, which includes the separation of 107 employees, realigning sales and marketing spend, and improved optimization of research and development investments.
- Non-GAAP basic net loss per share in the range of ($0.22) to ($0.44) and non-GAAP free cash flow of approximately negative ($50) to ($100) million.
- Effective non-GAAP tax rate of approximately 50%.
- Stock-based compensation expense estimated at $100 million to $110 million and basic share count of approximately 233 million.
First Quarter 2017 Guidance
- Revenue to be in the range of $270 million to $290 million.
- Non-GAAP basic net loss per share in the range of ($0.18) to ($0.20).
- Effective non-GAAP tax rate of approximately 50%.
- Stock-based compensation expense estimated at $23 million to $25 million and basic share count of approximately 226 million.
Shares of Fitbit closed today at $5.88, down $0.16 or -2.65%. FIT has a 1-year high of $18.85 and a 1-year low of $5.62. The stock’s 50-day moving average is $6.75 and its 200-day moving average is $10.82.
On the ratings front, Fitbit has been the subject of a number of recent research reports. In a report released yesterday, Dougherty analyst Charlie Anderson reiterated a Hold rating on FIT. On January 31, Baird’s William Power maintained a Hold rating on the stock and has a price target of $6.00.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Charlie Anderson and William Power have a yearly average return of 11.7% and 5.9% respectively. Anderson has a success rate of 58% and is ranked #984 out of 4496 analysts, while Power has a success rate of 61% and is ranked #952.
Sentiment on the street is mostly neutral on FIT stock. Out of 11 analysts who cover the stock, eight suggest a Hold rating, two suggest suggest a Sell and one recommends to Buy the stock. The 12-month average price target assigned to the stock is $6.67, which represents a potential upside of 9% from where the stock is currently trading.
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.