Fitbit Inc Reports Putrid Fourth-Quarter Earnings

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FIT stock - Fitbit Inc Reports Putrid Fourth-Quarter Earnings

Source: Fitbit

At this point, Wall Street has realized it needs to set the bar awfully low for Fitbit Inc (NYSE:FIT). As the company’s fourth-quarter earnings report, out Wednesday night, just proved, the bar was still too high. Yet somehow, FIT stock is eking out small gains in after-hours trade.

Fitbit’s revenues plunged 19.4% during the fourth quarter to $573.8 million, missing top-line expectations by $2.2 million. The company also posted a big adjusted loss of 56 cents per share that was two pennies below the consensus mark.

The outlook wasn’t encouraging, either. Fitbit expects revenues to come in a range of $270 million to $290 million, compared to estimates of $308 million. Meanwhile, a loss of 18 to 20 cents per share of FIT stock was wider than the Street’s guess for 16 cents per share.

That’s not to say Fitbit’s Q4 earnings report was completely devoid of positivity. Among the quarter’s highlights:

  • The number of active users jumped by 37% to 23.2 million.
  • FIT acquired rival Pebble for $23 million and Vector Watch for $15 million (much of this was for the engineers and intellectual property assets).
  • The Digital Health initiative is showing traction. Some of the recent partners include Medtronic as well as one of the largest health plans in the U.S.

However, I want to point out that quotes from CEO James Park come across as tone-deaf. He glosses about the company’s “powerful brand,” “engaged global community,” “right investments,” “long-term,” valuable data” and so on. But Fitbit stock is in the midst of a nearly 70% decline in less than a year. Investors want something more than PR babble, and they’re not getting it.

FIT stock chart view 1

Technically speaking, Fitbit has few catalysts in the wings. Shares are plumbing the depths of their publicly traded life. At about $6 per share in after-hours trading, FIT stock sits just about 6% off its all-time lows reached earlier this month, and it’s a couple percent below its short-term 20-day moving average.

FIT Stock: Cheap, But for a Reason

UPDATE: On a fundamental basis, FIT has made efforts to restructure operations, such as with a 6% reduction in the workforce. Keep in mind that at the end of the year, Fitbit was at a run rate of $200 million in lower operating expenses.

But this seems tame, especially with the plunging revenues.

It’s also worrisome that FIT is entering the smartwatch category, which means going head-to-head with the mighty Apple Inc. (NASDAQ:AAPL).

Why not instead focus much more on the enterprise healthcare market, which could benefit from the potential cost-savings of patient monitoring? Or perhaps try to find ways to make existing fitness devices more compelling for consumers?

For the most part, Fitbit’s actions have been more puzzling than anything else.

I will say that Fitbit’s valuation is certainly interesting. The price-to-sales ratio is down to just 0.6, and if you strip out the $706 million in the bank, the multiple is a mere 0.3! A buyout would be dirt cheap, and there are several players — think Microsoft Corporation (NASDAQ:MSFT) — that would want a bigger presence in the market.

However, betting on such an outcome is dicey. Rumors have swamped BlackBerry Ltd (NASDAQ:BBRY) and GoPro Inc (NASDAQ:GPRO), but both are still out there — and at much lower prices than they used to be.

Fitbit’s core business is showing few signs of improvement. The product roadmap is lackluster. The competitive environment will only get tougher as Apple continues to ramp its enormous resources into its Watch and iPhone franchise.

Investors looking for a long-term bet should avoid FIT stock for now.

Tom Taulli runs the InvestorPlace blog IPO Playbook and also has his own free iOS app to estimate your tax refund, which is at PathwayTax.comFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2017/02/fitbit-inc-fit-stock-q4-earnings-are-an-absolute-dud/.

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