Fitbit's New Products, International Growth Has Citi Buying, But Stock Is Tumbling

Following Fitbit Inc FIT's beat on 1Q earnings release, the shares are down 12 percent, driven by the 2Q EPS guidance implying more back-end loaded seasonality.

Citi’s Stanley Kovler reiterated a Buy rating on the company,with a price target of $30.

Kovler mentioned that the 1Q EPS of $0.10 was ahead of the estimate of $0.04, while the raised midpoint of the FY16 EPS guidance was based on higher revenue expectations, offset by increased capex.

Results And Guidance

“We remain confident in Fitbit’s ability to execute on its CY16 plan and maintain our CY16 EPS of $1.20 on higher revs of $2.65 billion vs. $2.49 billion previously,” the analyst stated.

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Although the 2Q EPS guidance was disappointing, management guided to revenue for the quarter above the prior estimate, since the EPS guidance was due to higher investments in new product development and marketing.

“Fitbit remains in secular growth mode on implied rev growth ~40 percent in CY16 as a pure play on wearables, a market growing >20 percent p.a.,” Kovler said.

Positives For Fitbit

The analyst pointed out that there were several reasons to be positive on the stock, including the revenue growth and guidance that implies that the secular growth story remains intact.

Kovler also believes that execution was improving at Fitbit, with the company having beaten its guidance over the past three quarters and raising its FY16 guidance.

In addition, expanding distribution has been driving international growth of 115 percent year-on-year, from 72.4 percent.

In the last minutes of Thursday's pre-market session, Fitbit was down more than 13.5 percent.