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Highlights for Investors From Fitbit's Latest Earnings Report

Sales of health and fitness wearables maker Fitbit (NYSE: FIT) were down after the company reported on its third-quarter on Nov. 1. It was a solid report card, but investors apparently chose to focus on the negative this time around.

FIT data by YCharts

The company continues to execute on its turnaround strategy, although the numbers are still way down from last year. You can see in the chart below that revenue was up from the second quarter, but down 22% year over year. Earnings per share remained negative and the number of devices sold increased by 200,000 from the second quarter but were down significantly from last year's Q3.

The numbers

Metric

Q3 2017

Q2 2017

Q3 2016

Revenue

$392.5 million

$353.3 million

$503.8 million

Earnings (Loss) per share

($0.48)

($0.25)

$0.11

Non-GAAP earnings (loss) per share

($0.01)

($0.08)

$0.19

Devices sold

3.6 million

3.4 million

5.3 million

Data source: Fitbit.  

Other device makers have moved in on Fitbit's turf, and consumers now prefer a smartwatch over a fitness wearable. The company has introduced new devices to play catch-up, and sales are showing improvement.

While Fitbit has dipped into the red as sales have slumped from the year-ago quarter, operations are close to being in the black once more. Losses in the just-reported quarter because of stock-based compensation and one-time items such as income tax effects and a loss from a distributor's bankruptcy filing. Excluding those items, broken down as non-GAAP earnings, shows the company nearly back to profitability with a per-share loss of $0.01.

It's still all about device sales

Though device sales were down 32% from last year's third quarter, the numbers are slowly climbing again. Part of the rebound has come from new releases in the past 12 months, including the Alta HR and the company's first proper smartwatch, the Ionic. Those products made up 32% of total revenue in the quarter.

More important, though, was the average selling price per device, which increased 4% from last quarter and 12% year over year to $104.72. Accessories and other related revenue were responsible for the increase. Although devices sold were down 32% year over year, revenue was down only 22%. 

The new Fitbit Ionic smartwatch. Image source: Fitbit.

Playing the waiting game

Investors may have been let down by results for the third quarter, but it's important to bear in mind that Fitbit's new devices were just announced at the tail end of the period. The fourth quarter will be the first full quarter of sales for the Ionic smartwatch and accompanying Flyer headphones, and they should have a much greater impact on both the top and bottom lines.

Management forecast another increase in business during the upcoming holiday shopping frenzy. Revenue in the fourth quarter is expected to be $570 million to $600 million, not only a big jump from the third quarter but actually in line with fourth quarter 2016's $574 million mark. Adjusted earnings of a $0.03 loss to a $0.01 gain are anticipated, not an improvement but still better than earlier in the year.

Data by YCharts.

If those numbers transpire, it would be a positive sign that Fitbit has corrected the long slide it's been experiencing in sales and profit since last summer. It all hinges on consumer reception of the Ionic, though, which has some compelling features but also has issues that Fitbit will need to work out. Look for a meaningful update when the fourth quarter is reported on, probably in early February 2018.

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Nicholas Rossolillo owns shares of Fitbit. The Motley Fool owns shares of and recommends Fitbit. The Motley Fool has a disclosure policy.