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Fitbit (FIT) Down 5.2% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Fitbit (FIT - Free Report) . Shares have lost about 5.2% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Fitbit Q1 Loss Narrower Than Estimated, Revenues Beat

Fitbit, Inc. reported first-quarter 2019 adjusted loss of 15 cents per share, narrower than the Zacks Consensus Estimate of a loss of 22 cents.

The company’s total revenues came in at $271.9 million, up 9.7% year over year but down 52.4% on a sequential basis.

The top line was ahead of management’s guided range of $250-$268 million and surpassed the consensus mark of $260 million.

Strong sales gains from its smartwatch devices and trackers aided growth in the quarter. In the first quarter, smartwatch devices sold, contributing 42% to revenues, increased 117% year over year and trackers sold, accounting for 58% of revenues, were up 17%.

During the quarter, Fitbit sold 2.9 million devices, up 36% year over year. New products launched over the past 12 months, namely Fitbit Charge 3, Fitbit Inspire, Fitbit Inspire HR and Fitbit Versa Lite Edition, contributed 67% to the company’s revenues.

The average selling price (ASP) decreased 19% from the prior-year level to $91 per device in the first 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.

Top-Line Details

Geographically, revenues from the United States accounted for 50% of first-quarter revenues, EMEA brought in 32%, Americas excluding the United States contributed 5% and the remaining 9% came from Asia Pacific.

On a sequential basis, all the regions depicted a decrease. On a year-over-year basis, revenues from EMEA and Asia Pacific increased, while the same from all other regions marked a decline.

Margins and Net Income

Non-GAAP gross margin was 34.2%, down 1,290 basis points year over year. Gross margins were negatively impacted by greater mix shift toward smartwatch revenues and lower yields from its product launch.
 
Non-GAAP operating expenses were 151 million, down 13.1% from the year-ago quarter.

Pro-forma net loss was $38.1 million or loss per share was 15 cents versus net loss of $41 million or loss per share of 17 cents in the year-ago period.

Balance Sheet and Cash Flow

Cash and cash equivalents & Marketable securities were $644.2 million compared with $723.4 million in the fourth quarter.

Accounts receivables were $250.6 million compared with $414.2 million in fourth-quarter 2018.

Cash flow from operations was ($68) million and free cash flow totaled ($74) million in the first quarter.

Guidance

For second-quarter 2019, Fitbit expects revenues in the range of $305-$320 million, indicating an increase of 2-7% on a year-over-year basis. 

The company expects non-GAAP gross margin to be approximately 36-38% and non-GAAP basic net loss per share in the range of ($0.20) to ($0.17). 

For full-year 2019, Fitbit reaffirmed its revenue forecast in the range of $1.52-$1.58 billion. 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -7.14% due to these changes.

VGM Scores

Currently, Fitbit has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

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

Outlook

Fitbit has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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