Fitbit U.S. Sales Down 28%; Can New Products Restore The Stock To Health?

Baird remains on the sidelines on Fitbit Inc FIT after tepid fourth-quarter results, given uncertainties in product and cash flows.

Print, In Review

The wearable device maker reported lower-than-expected fourth quarter results. Following is gist of Fitbit's Q4 numbers:

• Fitbit reports fourth-quarter adjusted EPS of $(0.56), missing by $0.06.
• Sales came in at $574 million, missing by $2 million.
• U.S. sales down 28.3 percent.
• Sees Q1 adjusted EPS in the range of $(0.20)–$(0.18), against analysts' estimates of $(0.15).
• Forecasting sales of $270 million–$290 million in Q1, $1.5 billion–$1.7 billion for FY 2017.
• Sold 6.5 million devices in Q4, 22.3 million in FY 2016.

Looking Ahead

Even as the first half of 2017 is likely to prove challenging, Fitbit is betting on new products and categories to boost sales later in the year, though the latest customer engagement metrics raise fresh concern.

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Fitbit ended 2016 with 23.2 million active users, up from 16.9 million a year ago, after selling 22.3 million devices during the year. But, the gap between registered and active users continues to get wider as the number of registered device users rose from 29.0 million to 50.2 million.

The company, which expects software & services enhancements to help improve engagement, plans new form factors, smartwatches, and greater enterprise healthcare integration to help reinvigorate sales.

Analyst Commentary

But, analyst William Power believes the path will not be smooth due to tough competition from Apple Inc. AAPL.

“[C]ompeting against Apple and Android in the smartwatch arena could prove difficult, and what critical features get added to its trackers this year remains unclear,” Power wrote in a note.

Power said Fitbit would like to return to a spring/fall product release schedule, which could imply a new product update sometime this spring.

Meanwhile, increased cash burn is another cause of concern for investors as Fitbit expects to burn $50 million–$100 million during the year.

As such, Power maintains his Neutral rating with a $6 target price.

At last check, shares of Fitbit rose 1.79 percent to $5.98.