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Fitbit (FIT) Q1 Earnings & Revenues Surpass Estimates

Fitbit Inc. FIT reported first quarter 2016 earnings per share (EPS) of 3 cents as against the Zacks Consensus Estimate of a loss of 4 cents. Shares went down over 12.5% in after-hour trade owing to a weak outlook. 


Fitbit reported revenues of $505.4 million up a huge 50.1% year over year. This exceeded management’s guidance of $420 million–$440 million and surpassed the Zacks Consensus Estimate of $443 million by 13.9%. This increase was mainly driven by strong initial success of Blaze and Alta.

Geographically, revenues from the United States accounted for 79% of first quarter revenues, Asia-Pacific contributed 7%, EMEA brought in 10% and the remaining 4% came from the Americas excluding the U.S.

First quarter revenues from the U.S. were down 24.6% year over year while that from Asia-Pacific and EMEA grew 10.4% and 6.8%, respectively.  Americas, excluding the United States, dropped 42.6%.

Margins and Net Income

In the reported quarter, Fitbit’s gross margin was 46.3%, down 214 basis points (bps) sequentially and 330 bps year over year. The decrease is mainly driven by increased costs of producing and marketing Blaze and Alta.

Pro-forma net income was $11.4 million or earnings per share of 5 cents compared with $71.6 million or earnings per share of 29 cents in the previous quarter and $42.8 million or earnings of 20 cents a year ago.

First-quarter EPS gained from an effective tax rate of 26.1% compared with 39% in the year-ago quarter.

On a GAAP basis, net income was $11 million or earnings per share compared with $64.2 million in the previous quarter and $15.6 million in the year-ago period.

GAAP net income of $11.04 million ($0.05 a share) dropped from the previous ($64.17 million, or $0.26 a share) and year-ago quarter ($15.62 million, or $0.22 a share).

Balance Sheet and Cash Flow

Fitbit exited the quarter with cash, cash equivalents and marketable securities of $791.7 million, compared with $664.5 million in the year-ago quarter.

Inventories were $212.1 million compared with $178.1 million in the year-ago quarter. The company has no long-term debt.


For the second quarter, Fitbit expects revenues in a range of $565 million–$585 million. The Zacks Consensus Estimate is pegged at $537 million.

Non-GAAP earnings per share are expected between 8 cents and 11 cents, with share count in a range of 247 million to 250 million. The company expects non-GAAP gross margin to be 48.5% and non-GAAP tax rate to be approximately 30%.

The company’s non-GAAP calculation excludes stock-based compensation.

Our Take

Fitbit posted descent first quarter results with both the top line and the bottom line exceeding the respective Zacks Consensus Estimates.

In the quarter, product innovation, expansion of global distribution, network effects of Fitbit community and prudent investments were the main growth drivers.

The quarter witnessed Fitbit rolling out the much awaited Blaze and Alta. Blaze shipments totaled over 1 million units. Both the products received excellent reviews on Amazon and solid reorders from retailers. Blaze and Alta contributed 47% to first quarter revenues.

The company continued with investments in R&D to create more powerful electronics, miniaturized yet fashionable designs, spontaneous user interfaces and engaging social and community features. Investments in software have helped user retention over time. R&D headcount was 755 in the first quarter, up from 295 in the year-ago quarter and 624 in the prior quarter.

On the corporate wellness font, Fitbit continued to expand backed by strategic partnerships in the employee benefit space. The company currently works with 10 of the top 100 benefits brokers in the U.S.

On the digital health font, Fitbit continued exploring partnership opportunities. The company’s popularity continues in the research community. Fitbit devices are used by major universities and research institutions and in more than 100 research projects.

The company announced its plan to enter into a strategic partnership with Alibaba, the largest retailer in the world, to target millions of Chinese consumers through Alibaba’s TMall platform

Management believes that Fitbit has the capacity to serve in the consumer healthcare engagement field that currently is a missing element in broad healthcare efforts such as disease management and population health.

For the second quarter, the company plans heavy investments in research and development, sales and marketing and consumer engagement features.

Fitbit has a Zacks Rank #2 (Buy).

Investors may also consider stocks like Cascade Microtech Inc. CSCD, Facebook, Inc. FB and, Inc. AMZN. While Facebook and Cascade Microtech each sport a Zacks Rank #1 (Strong Buy), holds a Zacks Rank #2.

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FITBIT INC (FIT): Free Stock Analysis Report
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