Fitbit's 2016: A Tale Of Two Halves

Fitbit Inc FIT reported another quarterly beat. SunTrust Robinson Humphrey’s Robert S. Peck maintained a Buy rating for the company, with a price target of $20. He mentioned that even the raised FY outlook appears conservative.

Another Quarterly Beat

Fitbit reported its 1Q revenue at $505M, beating the Street estimate of $446M. Adjusted EBITDA came in at $45M, significantly better than feared. Although unit sales modestly missed expectations, ASP was substantially higher.

Tale of Two Halves

Fitbit raised its 2Q revenue, but lowered margins citing aggressive investment in R&D and marketing. Analyst Robert Peck believes that 2016 is unlikely to be as "linear" as was 2015.

For the first half of 2016, the company’s EBITDA margins could be around 8 percent, due to materially higher R&D investment as well as sales & marketing spend. Fitbit could witness significant operating leverage in the back half of the year, with EBITDA margins expanding to about 25 percent, Peck mentioned.

“3Q unit sales could be slower, with shipments depending on the timing of new product launches, i.e. September (3Q) or October (4Q), targeting the holiday season,” the analyst wrote. He pointed out that Fitbit’s guidance has historically proved conservative, and the company’s performance in 2H16 could be “substantially better than expected.”