Longbow Research Sees Fitbit Continuing To Take Market Share In Affordable Wearables

Longbow Research expects Fitbit Inc FIT to continue to take share in mainstream $100–$150 wearables.

Fitbit reported second-quarter EPS of $0.12, $0.01 above consensus, and its revenue of $586.5 million also topped the Street's view of $578 million.

The strong demand for Alta, Blaze and Charge HR boosted second-quarter results, despite substantial inventory headwinds in Australia. Further, the sales growth in the United States and EMEA rose to 38 percent and 150 percent, respectively.

"We think FIT has enough gas in the tank to drive strong unit growth for at least the next 9–12 months, through still-growing interest in mature markets(searches still +~30 percent Y/Y), expansion in China, and a Charge HR 2 and Flex 2 for 4Q," analyst Joe Wittine said.

Related Link: Unexpected Headwinds Didn't Keep Fitbit From A Solid Quarter

Guidance And Analyst Rationale

For the third quarter, the company forecast sales to decline 13–16 percent to $490 million–$510 million, consistent with the $497 million consensus and Longbow's $490 million forecast. The company sees third quarter EPS at $0.17–$0.19, meeting the $0.18 consensus.

The company reiterated its full-year EPS guidance of $1.12–$1.24 (vs. $1.17 consensus), on sales of $2.5 billion–$2.6 billion (vs. $2.575 billion consensus).

"FIT's back-weighted 2016 model creates risk, but we give management the benefit of the doubt 2Q will be the 2016 sales & marketing peak," Wittine noted.

Wittine has a Buy rating and $20 target price on Fitbit shares, which surged 9.95 percent to $14.47 on Wednesday.

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