Fitbit Inc. FIT reported third-quarter 2015 earnings of 19 cents per share, which breezed past the Zacks Consensus Estimate of 5 cents by a whopping 280%.
Nevertheless, shares dropped 8.1% to $37.50 in after-hours trading in response to Fitbit’s announcement that it would sell more shares thus diluting earnings.
Revenues
Fitbit reported revenues of $409.3 million, up a massive 167.7% year over year. This exceeded management’s guidance of $335–$365 million and surpassed the Zacks Consensus Estimate of $347.0 million by 18%.
The company sold 4.8 million connected health and fitness devices in the reported quarter.
Growing sales was attributed to three factors namely, software improvements in existing products; marketing expansion in international markets, and Fitbit Wellness.
A major contributor was the continued expansion of Fitbit’s corporate wellness program. In the last four months, the firm added 20 companies, the most notable being Target and Barclays. Fitbit also announced that 70 Fortune 500 companies have enrolled under the program.
Geographically, revenues from the United States accounted for 66% of the third-quarter revenues, 16% was contributed by Asia-Pacific ,12% came from EMEA, and 6% from the Americas excluding the U.S.
Third-quarter revenues from the United States surged 130% year over year, while that from Asia Pac soared 314%. EMEA grew a massive 282%, while Americas, excluding the United States, recorded a significant year-over-year rise of 286%.
Margins and Net Income
In the reported quarter, Fitbit’s gross margin was 48.0%, up 105 basis points from 47.0% in the previous quarter buy down 572 basis points from 53.7% reported in the year-ago quarter.
Pro-forma net income was $46.4 million or earnings per share of 19 cents compared with $45.8 million or earnings per share of 19 cents in the previous quarter and $69.1 million or earnings per share of 34 cents a year ago.
On a GAAP basis, net income was $45.8 million or earnings per share of 19 cents compared with $17.7 million or earnings per share of 19 cents in the previous quarter and $68.9 million or earnings per share of $1.13 in the third quarter of 2014.
Balance Sheet and Cash Flow
Fitbit exited the quarter with cash, cash equivalents and marketable securities of $575.5 million, compared with $64.0 million last year.
Cash from operations surged 37x to $121.3 million in the third quarter from the year-ago period.
Fitbit intends to sell another 21 million shares, including 7 million primary shares and 14 million secondary shares. It also announced lock-up restrictions on 2.3 million shares to be lifted on Nov 4.
Guidance
For the fourth quarter, Fitbit expects revenues in the range of $620–$650 million. The Zacks Consensus Estimate is pegged at $571 million.
Non-GAAP earnings per share are expected between 20 cents and 25 cents, with share count in the range of 253 million to 255 million. The company expects non-GAAP gross margin within 48–49% and non-GAAP tax rate of approximately 33%.The company’s non-GAAP calculation excludes stock-based compensation.
Our Recommendation
Fitbit posted solid third-quarter results with both the top line and the bottom line exceeding the respective Zacks Consensus Estimates. The company also issued encouraging guidance for the fourth quarter.
In the quarter, the company added features and services to the existing products, increased brand awareness, expanded global distribution — marketing campaign in 20 countries in second-half 2015 up from only 8 in 2014 — and presence in the corporate wellness market with the addition of 20 enterprise customers.
Software updates to Surge, Charge and Charge HR will yield solid results in the holiday season. At the same time, Fitbit introduced enhancements in other regions, such as integrating Baidu maps in China.
Fitbit launched a universal Fitbit App for Windows 10. This application runs on desktops as well as mobiles and offers a feature-rich experience designed exclusively for Windows. With this, Fitbit is now available on more than 200 devices.
These innovations will significantly enhance user experience with all facets of the Fitbit platform as a very powerful social network and thus, drive growth.
Fitbit has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the industry are JD.com, Inc. JD, Expedia Inc. EXPE and Amazon.com, Inc. AMZN. While Expedia and JD.com sport a Zacks Rank #1 (Strong Buy), Amazon has a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment