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Fitbit (FIT) Q1 Loss In Line with Expectations, Revenues Top

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Fitbit, Inc. 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.

Results declined year over year as increased competition from fitness-device makers like Garmin (GRMN - Free Report) and Jawbone and increased popularity of smart watches resulted in slower growth in the fitness wearable space.

At the call, management highlighted some recovery initiatives that are already in place. These include an executive shakeup and cost structuring.

In the quarter, the company realigned under two main businesses - Consumer Health & Fitness and Enterprise Health. The Consumer Health & Fitness business focuses on delivering more efficient health and fitness devices, diversifying into the smartwatch category and offering premium software and services. 

Enterprise Health, on the other hand, focuses on developing and strengthening relationships with employees, insurance companies, health systems and healthcare partners. Only time will tell if these moves really work and give Fitbit a chance to make a comeback.

We note that Fitbit’s growth has been slowing down with smartwatches outshining the fitness wearable category, influx of new wearables, lack of upgrades among existing users and lackluster growth in the Asia Pacific region.

The impact of these headwinds has been significant on the stock, which underperformed the Zacks Electronics - Measuring Instruments industry over the last one year. While the industry gained 15.2%, the stock lost a massive 53.2%.

Let’s check out the numbers in detail.

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.

Fitbit, Inc. PE Ratio (TTM)

 
 

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 midpoint of the range is slightly lower that than the Zacks Consensus Estimate of $340.4 million. The company expects non-GAAP loss per share to be in the range of 14 cents to 17 cents. The Zacks Consensus Estimate is pegged at a loss of 18 cents. It expects non-GAAP tax rate to be approximately 43%.

Zacks Rank and Stocks to Consider

Fitbit currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader technology sector include Alphabet Inc. (GOOGL - Free Report) , Monolithic Power Systems, Inc. (MPWR) and Internap Corporation . While Alphabet sports a Zacks Rank #1 (Strong Buy), Monolithic Power and Internap carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings per share growth rates for Alphabet, Internap and Monolithic Power are 16.7%, 3% and 17%, respectively.

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