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Why Is Fitbit (FIT) Down 3% 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 3% 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 drivers.

Fitbit Q3 Loss In Line With Estimates, Revenues Beat

Fitbit, Inc. reported third-quarter 2019 adjusted loss of 10 cents per share, in line with the Zacks Consensus Estimate.

The company’s total revenues came in at $347.2 million, down 11.5% year over year but up 16% on a sequential basis.

The top line was within management’s guided range of $335-$355 million. The figure surpassed the consensus mark by 0.3%.

During the quarter, Fitbit sold 3.5 million devices, flat year over year. Products launched over the past 12 months — namely Fitbit Inspire, Fitbit Inspire HR, Fitbit Ace 2, Fitbit Versa Lite Edition and Fitbit Versa 2 — contributed 61% to the company’s revenues.

The average selling price decreased 12% from the prior-year level to $96 per device in the third quarter.

On Nov 1, 2019, Fitbit entered into a definitive agreement to be acquired by Google for a total amount of approximately $2.1 billion. The deal is expected to close in 2020, subject to customary closing conditions, including consent from Fitbit’s stockholders and regulatory approvals. The deal will likely help the company to accelerate innovation in the wearables category.

Let’s check out the numbers in detail.

Top-Line Details

Smartwatch revenues, which contributed 58% to total revenues, increased from the year-ago quarter.

Notably, the company did not launch any tracker in the third quarter. Therefore, trackers — which accounted for 39% of total revenues — were down year over year. On the contrary, Fitbit Health Solutions revenues grew 10% year over year in the quarter.

Geographically, revenues from the United States accounted for 60% of third-quarter revenues, EMEA brought in 24%, Americas excluding the United States contributed 5% and the remaining 11% came from Asia Pacific.

On a sequential basis, all the regions depicted an increase. On a year-over-year basis, revenues from the APAC region increased, while the same from all other regions marked a decrease.

Margins and Net Income

Non-GAAP gross margin was 32%, down 810 basis points year over year. Gross margins were negatively impacted by lower warranty benefit and a reduction in average selling price.

Non-GAAP operating expenses were 143.2 million, down 4.2% from the year-ago quarter.

Pro-forma net loss was $26.7 million or loss per share was 10 cents versus net income of $10 million or earnings per share of 4 cents in the year-ago period.

Balance Sheet and Cash Flow

Cash and cash equivalents & marketable securities were $502.2 million compared with $564.9 million in the second quarter.

Accounts receivables were $345.6 million compared with $258.6 million in second-quarter 2019.

Cash flow from operations was ($41) million and free cash flow totaled ($56) million in the third quarter.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -7.69% due to these changes.

VGM Scores

Currently, Fitbit has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, 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 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 #3 (Hold). We expect an in-line return from the stock in the next few months.


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