Undeterred by the Apple Watch release, Fitbit Inc. FIT reported second-quarter 2015 earnings of 19 cents per share, which breezed past the Zacks Consensus Estimate of 7 cents by a whopping 171.43%.
Fitbit shares, however, dropped 9% to $47.09 in after-hours trading despite the significant second-quarter earnings beat and strong guidance.
Revenues
Fitbit reported revenues of $400.4 million, up a massive 252.6% year over year. The revenues surpassed the Zacks Consensus Estimate of $322.0 million by 24.4%. This was the highest quarterly revenues reported in Fitbit’s eight-year history.
4.5 million fitness bands/activity trainers were sold in the quarter, up from 3.9 million in first quarter and 1.7 million a year ago.
On a year-over-year basis, U.S. revenues (78% of total revenue) soared 253% and International revenues surged 250%, driven by significant improvement of 301% and 292% in EMEA and APAC revenues, respectively.
Margins and Net Income
In the reported quarter, Fitbit’s gross margin was 47.0%, down 446 basis points from 51.4% reported in the year-ago quarter.
Pro-forma net income was $45.8 million (19 cents a share) compared with $17.9 million (9 cents a share) a year ago.
On a GAAP basis, net income was $17.7 million (19 cents a share) compared with $14.6 million (24 cents a share) in the second quarter of 2014.
Balance Sheet and Cash Flow
Fitbit exited the second quarter with current assets worth $967.9 million, up from the year-ago quarter’s $596.7 million.
The company exited the quarter with cash and cash equivalents of $461.3 million, up from $195.6 million in the year-ago period.
Guidance
For the third quarter, Fitbit expects revenues in the range of $335–$365 million.
Non-GAAP earnings per share are expected between 7 cents and10 cents, with share count between 247 million and 249 million. The company expects non-GAAP gross margin within 47–48% and non-GAAP tax rate of approximately 37%.
The company’s non-GAAP calculation includes stock-based compensation.
Our Recommendation
Fitbit posted solid second-quarter results with both the top line and the bottom line exceeding the respective Zacks Consensus Estimates. It also issued encouraging guidance for the next quarter.
In the quarter, the company introduced new features and services, increased brand awareness, expanded global distribution and presence in the corporate wellness market. These will continue to be the growth drivers, going forward.
The stock is up 70% since its IPO, so the decline in share price seems to indicate that some investors are taking in profits. This is not unusual for IPOs displaying strong growth trends.
Fitbit shares carry a Zacks Rank #3 (Hold).
Some better-ranked stocks in the industry are Groupon Inc. GRPN, Amazon.com Inc. AMZN and PetMed Express, Inc. PETS. While Groupon and Amazon sport a Zacks Rank #1 (Strong Buy), PetMed has a Zacks Rank #2 (Buy).
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