FitBit Falls Hard: Here's What Top Analysts Are Saying

Shares of

were trading lower by nearly 10 percent shortly after Thursday's opening bell. The company reported a better than expected second quarter print (its first ever as a public company) as revenue grew sequentially and showed a year over year acceleration from the first quarter on strong device sales. Here are what three of Wall Street's top analysts are saying.

Jim Duffy of Stifel commented in a note that Fitbit's second quarter was "strong" as the company's reported revenue of $400 million exceeded his $325 million estimate while adjusted net income of $51.3 million was also higher than the $17.8 million he expected. The analyst noted that the company sold 4.5 million devices (156 percent year over year growth) with an ASP (average selling price) increased to $88 from $63 a year ago. Duffy continued that Fitbit's third quarter revenue guidance of $335 to $365 million topped the $250 million he previously estimated. For the full year, the company guided towards a revenue base of $1.6 to $1.7 billion (versus his expectations of $1.4 billion) and adjusted EBITDA of $275 to $310 million (versus his $250 million estimate). Duffy also pointed out that Fitbit is also set to increase its investments in marketing and higher R&D spend. He commented that this is "entirely appropriate" for a company as young as Fitbit even though this may be a "near-term concern" for some investors. Bottom line, Duffy argued that the "encouraging" second quarter print, coupled with top-line momentum, implies the pullback in the stock is an "opportunity for entry" ahead of potential further upward revisions to estimates. Shares remain Buy rated with a price target raised to $60 from a previous $57.

Katy Huberty of Morgan Stanley commented in a note that Fitbit came "sprinting out of the gate" but shares are expected to be range-bound between her base case price target of $26 and her bull case price target $61 in the near-term. Huberty explained that her base case assumes Fitbit is a "major player" in the wearable market but continues to shed market share to new entrants through 2018. A bull case assumes Fitbit exceeds expectations with a 15 percent market share by 2018. Huberty noted that after Fitbit launched its Flex product in 2013, pricing has remained stable at a time when the company was able to lower its costs resulting in a higher than corporate average gross margin. However, as the selling mix shifted to new products (such as Charge), gross margins "reset" to lower levels. Looking forward, Huberty concluded that currency and a lower Flex mix remain headwinds. Shares remain Equal-weight rated with an unchanged $43 price target which represents the midpoint of the base and bull cases.

Bob Peck of SunTrust Robinson Humphrey commented in a note that despite updating his model to reflect "significantly" higher R&D and other expenses, "there is scope" for Fitbit to beat its EBITDA guidance for both the third quarter and full year 2015. Peck also commented that Fitbit's "dominant" market share position in the U.S., coupled with a supply chain that is "barely keeping up with demand," the company's 2015 guidance could be "conservative" and constrained by production capacity. Peck raised his 2015 and 2016 unit sales/revenue/EBITDA estimates to $19 million/$1.7 billion/$307 million and $24 million/$2.2 billion/$411 million from 7 million/$1.4 billion/$252 million and 23 million/$1.9 billion/$342 million, respectively. Shares remain Buy rated with a price target raised to $52 from a previous $50.