Fitbit Shares Plunge On Weak Outlook; Bob Peck Stills See Long-Term Opportunity

Shares of Fitbit Inc FIT plunged more than 13 percent Tuesday after the wearable device maker issued a weak outlook for the first quarter despite reporting better-than-expected results for the fourth quarter.

Following the weak forecast, the stock faced a slew of downgrades from Stifel Nicolaus, Baird, Pacific Crest and Piper Jaffray.

The Results

For the first quarter, Fitbit expects revenue in the range of $420 million to $440 million and adjusted earnings in the range of breakeven to $0.02 a share. Wall Street analysts' consensus revenue estimate is $484.58 million, while earnings are estimated at $0.24 a share.

The company expects full-year earnings in the range of $1.08 to $1.20 per share, with revenue ranging from $2.4 billion to $2.5 billion. That compares with the average estimate for earnings per share of $1.14 on revenue of $2.42 billion.

Related Link: Fitbit Fatigue: Analyst Sees 50% More Downside

Fitbit expects several dynamics to drive results in the first quarter. For the first time in the company's history, Fitbit will make a global launch of new products, Fitbit Blaze and Alta. The company expects higher marketing costs due to the launch of media campaigns around the world. Also, the timing of shipments into sales channels may result in the majority of reorders, especially for Alta, coming in the second quarter of 2016.

The company also expects to incur additional manufacturing costs in the first quarter to maximize production of new products to meet expected demand, which is expected to impact gross margins in the quarter.

Still Long-Term Opportunity

However, some Street analysts feel the company would benefit in the long run as more consumers around the globe are becoming health conscious. Active users grew 152 percent to 16.9 million at year-end 2015 from 6.7 million at year-end 2014. The company added 18.0 million new registered device users in 2015, of which 13.0 million, 72 percent, were active users at year-end; Total year-end 2015 registered device users was 29.0 million.

"While investments may be lumpy as FIT focuses on growth of the nascent market globally, we continue to believe there is a significant long-term opportunity for the company to deliver health/fitness solutions to consumers as well as enterprises and health insurers," SunTrust analyst Bob Peck wrote in a note to clients.

For the fourth quarter, Fitbit earned $0.35 a share after adjusting one-time costs, and topped Street view by $0.10. Fitbit generated revenue of $711.6 million, also beat Street forecasts. In the fourth quarter last year, Fitbit earned $39.2 million, or $0.19 per share, on revenue of $370.2 million.

Peck maintained his Buy rating, but reduced the target price on the stock by $5 to $20 to reflect market multiples and higher near-term investment.