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Why Is Fitbit (FIT) Down 9.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for Fitbit (FIT - Free Report) . Shares have lost about 9.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Fitbit 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 Surpasses Earnings and Revenue Estimates in Q3 

Fitbit, Inc. reported third-quarter 2018 adjusted earnings of 4 cents per share, surpassing the Zacks Consensus Estimate by 5 cents.

The top line also surpassed the Zacks Consensus Estimate by 12 million.

In the quarter, Fitbit sold 3.5 million devices, up 29.6% sequentially. New products launched over the past 12 months, namely Fitbit Versa, Fitbit Charge 3, Fitbit Ace and Fitbit Aria 2, contributed 62% to the company’s revenues.

The average selling price (ASP) increased 3% from the prior-year quarter to $108 per device in the third quarter.

Management remains optimistic about smartwatch sales and expects to increase its market share in this space in the coming quarters.

Let’s check out the numbers in detail.

Revenues

Fitbit reported revenues of $394 million, up 0.3% year over year and 31.5% on a sequential basis. The top line was ahead of management’s guided range of $370-$390 and also surpassed the consensus mark of $381 million.

The strong sale of its smartwatch devices and trackers aided growth in the quarter.

Geographically, revenues from the United States accounted for 58% of third-quarter revenues, EMEA brought in 27%, Americas excluding the United States contributed 6% and the remaining 9% came from Asia Pacific.

On a sequential basis, all the regions depicted an increase, except APAC. However, on a year-over-year basis, revenues from the Asia Pacific and EMEA increased, while the same from all other regions decreased.

Margins and Net Income

Non-GAAP gross profit in the third quarter was $157.8 million. Gross margin was 40.1%, down 510 basis points year over year. Gross margins were negatively impacted by the change in mix toward smartwatches, partially offset by improved warranty costs.
 
Non-GAAP operating expenses were 149.5 million versus 180 million in the year-ago quarter.

Pro-forma net income was $10 million or earnings per share were 4 cents against net loss of $2.8 million or loss per share of 1 cent in the year-ago period.

Balance Sheet and Cash Flow

In the third quarter, cash and cash equivalents & Marketable securities were $623.3 million compared with $580.5 million in the second quarter.

Accounts receivables were $326 million compared with $242 million in the last reported quarter.

Cash flow from operations was $59 million and free cash flow totaled $47 million in the third quarter.

Guidance

For the fourth quarter of 2018, Fitbit expects revenues to exceed $560 million, roughly flat on a year-over-year basis. 

The company expects non-GAAP earnings per share to exceed 7 cents. 

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

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 116.67% due to these changes.

VGM Scores

At this time, Fitbit has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Fitbit has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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