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Fitbit (FIT) Down 2% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Fitbit, Inc. (FIT - Free Report) . Shares have lost about 2% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is FIT 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 catalysts.

Fitbit (FIT - Free Report) Q1 Loss Lower Than Estimated, Revenues Beat

Fitbit reported first-quarter 2018 adjusted loss of 17 cents per share, lower than the Zacks Consensus Estimate of a loss of 20 cents. The top-line figure also exceeded the Zacks Consensus Estimate by 2 million.

The first-quarter results were impacted by weak demand for the company’s health and fitness trackers.  Also, increasing competition from Apple, Samsung Electronics, Xiaomi and Garmin impacted its results.

Following the weaker-than-expected results in the first quarter, Fitbit’s share price plunged 5.45% in after-hours trading. Also, weak revenue guidance for the second quarter could be a reason for the plunge in share price.

In the quarter, Fitbit sold 2.2 million devices, down sequentially. New products launched in the last 12 months, namely Fitbit Ionic, Fitbit Versa, and Fitbit Aria 2 and accessory Fitbit Flyer, contributed 34% to revenues.

Management expects the newly launched Versa smartwatch to pick up demand more than its Ionic device. Also, the company plans to ramp up manufacturing capacity to meet expected higher demand for its smartwatches.

We, however, note that Fitbit’s growth has been hampered by the popularity of smartwatches in the fitness wearable category, influx of new wearables, increasing competition from Apple (AAPL), 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 has significantly underperformed the industry in the last 12 months. While the industry has gained 30.1%, the stock has lost 4.4%.

Let’s check out the numbers in detail.

Revenues


Fitbit reported revenues of $247.9 million, down 17.1% year over year and 56.6% on a sequential basis. The top line was within management’s guidance of $240-$255 and above the consensus mark of $246 million.

Weakness in almost all regions led to the sequential decrease in revenues.

The average selling price (ASP) increased 10% sequentially and 16% from the prior-year quarter to $112 per device in the first quarter.

Geographically, revenues from the United States accounted for 56% of first-quarter revenues, EMEA brought in 26%, Americas excluding the United States contributed 7% and the remaining 11% came from the Asia Pacific.

On a sequential basis, all the regions depicted a decrease. However, on a year-over-year basis, revenues from the Asia Pacific increased 28%, while the same from all other regions decreased.

Margins and Net Income

Non-GAAP gross profit in the first quarter was $116.7 million. Gross margin was 47.1%, up 710 basis points (bps) year over year and 290 bps sequentially.
 
Non-GAAP operating expenses were 173.9 million versus 181.6 million in the year-ago quarter.

Pro-forma net loss was $41.0 million or loss per share was 17 cents compared with net loss of $34.4 million or loss per share of 15 cents in the year-ago period.

Balance Sheet and Cash Flow

In the first quarter, cash and cash equivalents were $378.4 million compared with $342 million in the fourth quarter.

Accounts receivables were $214.4 million compared with $406 million in the last reported quarter. Inventories were $145.4 million compared with $123.9 million in the fourth quarter.

Cash flow from operations was $10.2 million and free cash flow was ($2.5) million in the first quarter.

Guidance

For the second quarter of 2018, Fitbit expects revenues in the range of $275-$295 million, representing a decline of approximately 19% year over year.

The company expects non-GAAP loss per share within the range of 27-23 cents.  It expects non-GAAP tax rate to be approximately 25%.

For full-year 2018, Fitbit reiterated its revenues of $1.5 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been eight revisions lower for the current quarter.

Fitbit, Inc. Price and Consensus

 

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

VGM Scores

At this time, FIT has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. The stock was also allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

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

The company's stock is suitable solely for growth based on our styles scores.

Outlook

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




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