Fitbit (NYSE:FIT) reported fourth-quarter earnings Wednesday after markets closed. While the results were generally good, the company’s outlook for the first quarter wasn’t nearly as optimistic, sending Fitbit stock down by more than 10% in after-hours trading.
Should Fitbit shareholders be happy or sad about the year ahead given the negative earnings coverage?
If you believe profits are the name of the game, then you ought to be excited about the possibilities for Fitbit stock. Here’s why.
Analysts were expecting Fitbit to earn $0.07 in the fourth quarter. It came in double the estimate at 14 cents a share. On the top line, revenues were $571.2 million, slightly ahead of both the year-ago figure and the consensus estimate.
The Good News on Fitbit Stock
There was a time when Fitbit was losing significant revenue. To flatline is a sign that the maker of wearables and smartwatches is hanging in there despite many people, including myself, giving it very little chance of surviving long-term against the Apple’s (NASDAQ:AAPL) of the world.
If you’re a glass half full kind of person, the fact that Fitbit was able to sell 200,000 more devices in this year’s Q4 compared to last, is a good thing. Also, its three new devices: Fitbit Versa, Fitbit Ace, and Fitbit Charge 3, contributed 79% of its revenue in the quarter.
The quarterly sales mix suggests the company is listening to the marketplace by delivering new products that consumers want to own. That should pay benefits in the future.
Fitbit’s become the number two selling smartwatch company in the U.S. The company’s smartwatch sales accounted for 44% of its overall Q4 revenue, up from 8% in 2017, suggesting that Apple no longer has the market to itself.
In 2019, Fitbit expects revenues of at least $1.52 billion. That’s down from the heydays in 2015, but it’s pretty darn good for a company that was thought to be on life support.
Is it entirely out of the woods? Of course not.
The Bad News on Fitbit Stock
The fact that Fitbit sees itself losing as much as 24 cents a share in Q1 2019, 60% worse than analyst expectations, is enough to scare the most loyal of shareholders out of their positions. It doesn’t help matters that Fitbit could also deliver revenues that are as much as 8% lower than the consensus estimate.
There’s no way to paint this outlook in a positive light.
It also doesn’t help that Fitbit expects to lose money on an adjusted EBITDA basis in fiscal 2019, the third year in a row doing so after being a consistent moneymaker through the end of 2016.
Lastly, the fact that the average selling price for its devices will continue to drop in 2019 doesn’t provide investors with a distinct pathway to profitability despite the fact it also expects to sell more devices in the year ahead.
The Bottom Line on Fitbit Stock
Back in February 2017, I recommended investors buy Fitbit’s trackers, but not its stock.
“Your fitness tracker may get you to your retirement in one piece — ready to enjoy 20 years of bliss — but your investment portfolio is what’s going to pay for it,” I wrote in 2017.
Whether FIT stock is $5 or $50, investing in the company’s future is a crap shoot at best and a sure recipe for indentured servitude at worst.”
How do I feel today?
Well, I generally like to invest in companies that are making money on a GAAP basis and Fibit’s not close, but the moves it’s making in smartwatches tells me it’s heading in the right direction.
If you own FIT stock, I’d be happy about the fourth quarter and cautiously optimistic about 2019. If you can afford to lose your entire investment, I’d ponder buying on the dip.
If you don’t own stock, I’d buy, but only if you’re an aggressive investor. The risk-averse ought to hang on to your money.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
