Fitbit Revenue Up, Shares Down on Conservative Q2 Projections
Fitbit shares plunged 19 percent Thursday to $13.88 on mixed guidance after its Wednesday Q1 earnings call. Chief Financial Officer William Zerella projected Q2 adjusted earnings between 8 cents and 11 cents per share on $565 million to $585 million volume. Fitbit sold 4.8 million connected health and fitness devices in Q1, growing revenue 50 percent to $505 million. For the full year, Fitbit projects revenue from $2.5 billion to $2.6 billion, with two-thirds coming from Q4 sales.
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Fitbit CEO James Park opened the earnings call with a series of testimonials on the health benefits of Fitbit trackers and then distanced the current crop of Fitbit models from being construed as medical devices. It’s a balancing act the company has been performing for several months as it looks to grow its corporate wellness and digital health business while trying to avoid backlash for overstepping its claims on its heart-rate monitors.
A class-action complaint filed Jan. 5 in U.S. District Court in San Francisco cited Fitbit for advertising its PurePulse trackers with taglines “Every Beat Counts” and “Know Your Heart,” calling Fitbit’s representations false (see 1601150046). Park said Fitbit products “are not medical devices and do not themselves diagnose or treat medical conditions,” but added: “They show the potential and power of the devices and software and point the way to future where Fitbit becomes an even more essential part of people's lives.”
Park took a jab at nonbelievers’ “casual skepticism” about Fitbit Blaze, which launched in February, has shipped over a million units, and has “excellent reviews” and “strong reorders” from retailers. The Blaze and Alta devices comprised 47 percent of Q1 volume, the company said. Fitbit added 18 million new registered devices in 2015, of which 72 percent were “still active users” at year end, it said.
Fitbit is comfortable with its store count in the U.S., where the focus is on “significant expansion of shelf space,” said Park. The company expects its top four U.S. retailers to expand shelf space by 50 percent to accommodate Blaze, Alta and accessories. On whether the expansion is a reflection of Fitbit’s growth or that of the overall category, Park said the channel realizes “Fitbit is almost essentially the category.” He quoted NPD figures giving Fitbit’s Q1 dollar share in the category as 87 percent and said channel partners prefer to deal with fewer vendors rather than more. Retailers will begin transitioning to modular and interactive displays that can easily swap out products coming to market later in the year, he said.
The company expects average selling prices (ASPs) to continue to hover around $100 going forward, with ASPs dipping late year due to holiday promotions, including Black Friday. The success of accessories, a new category, could change ASPs, Zerella said. A device sale plus an accessory could take ASPs to $104, he said.
Zerella highlighted three Q1 points: the ability to add new users, upgrade existing users and reactivate inactive users. Roughly 40 percent of Blaze and Alta activations were by previous Fitbit customers and 20 percent of those buyers reactivated a device after having a device go inactive for 90 or more days. The “vast majority” of Blaze and Alta buyers upgraded from a prior Fitbit device, and fewer than 10 percent traded down to a lower-priced Fitbit device, he said.
Park called the International Trade Commission’s ruling invalidating Jawbone patents as part of a patent infringement claim against Fitbit (see 1511060035) “pretty phenomenal.” The case is still going forward on Jawbone’s trade secrets claim, but Park said he's optimistic about the case’s direction.