Alright, guys…it happened again. Fitbit Inc (FIT) stock is selling off big-time in after-hours trading on Wednesday following first-quarter earnings — in which the company absolutely clobbered analyst estimates.
FIT stock was off more than 8% in late trading.
Fitbit has become synonymous with wearable fitness tracker technology, and its meteoric pace of sales growth continues. You’d think that Fitbit shares would reflect the stupendous quarter, but Wall Street continues to trade FIT stock, shall we say, skeptically.
Shares were down 42% year-to-date … before today’s earnings release.
FIT Stock by the Numbers
So, analysts were expecting Fitbit to grow revenue by 31% to $443.24 million. That didn’t happen. Revenue jumped 50% year-over-year to $505.4 million. Non-GAAP earnings were expected to come in around 2 or 3 cents per share; when Fitbit reported on Wednesday afternoon, EPS clocked in at 10 cents instead.
If investors needed more reasons to be bullish on FIT stock, they got it in the guidance. The company raised full-year 2016 earnings and revenue expectations, raising its revenue guidance from a range of $2.4 billion-$2.5 billion to $2.5 billion-$2.6 billion.
The company raised FY2016 EPS guidance from a range of $1.08 to $1.20 per share to a range of $1.12 to $1.24 per share.
One of the main concerns surrounding Fitbit, and perhaps one of the reasons investors have been so reluctant to bit FIT stock higher, is the fear of competitive pressures from the likes of Apple Inc. (AAPL) and Garmin Ltd. (GRMN).
However, the numbers don’t reflect a company struggling to move product. Successful launches for both new releases, the Fitbit Blaze and Fitbit Alta, saw sales of over 1 million units apiece. From the press release:
“Approximately 40% of Fitbit Blaze and Alta user activations were by users who had prior Fitbit devices; and approximately 20% of those were buyers who re-activated, coming back to the Fitbit community after having been inactive for 90 days or more.”
This shows not only that FIT stock should benefit longer-term from the crucial demographic of repeat buyers, but that Fitbit devices — and let’s not forget the growing ecosystem and network effects surrounding those devices — are addictive.
So where do bears get off sending FIT shares lower?
Well, if you were dying to be negative, you could point out that non-GAAP gross margins fell from 49.8% a year ago to 46.6% in Q1 2016.
Further hitting margins, one could argue, is the investing-heavy lingo the company used in its press report. This includes vows to continue investing heavily in research and development, sales and marketing, and “consumer engagement features.”
But I feel like such criticisms aren’t intellectually honest. Fitbit maintained its 2016 non-GAAP gross margin guidance between 48.5% and 49%, and as an investor I love to see tech companies investing heavily in R&D in attempts to make their products better.
Today’s FIT stock selloff is overdone, plain and simple. I wrote yesterday that I thought the company would beat on earnings and revenue, and it did. But Wall Street simply has an irrational hatred of this stock, at least in the short-term.
Longer-term, I’m encouraged that Fitbit’s quarter-after-quarter of top-notch results will cause the market to see its error.
As of this writing, John Divine was long FIT stock. You can follow him on Twitter at @divinebizkid or email him at email@example.com.