Fitbit is back to showing growth in device sales, but the company just delivered a downbeat earnings forecast for the current quarter.
The wearables manufacturer posted net income of $15.4 million, or 6 cents a share, compared with a loss of $45.5 million, or 19 cents a share, in the year-earlier period. After adjusting for stock-based compensation and other effects, Fitbit FIT, -13.83% claimed earnings of 14 cents a share, compared with an adjusted loss of 2 cents a share a year ago. Revenue was near flat, at $571.2 million relative to $570.8 million in the year-earlier quarter. Analysts surveyed by FactSet expected Fitbit to earn an adjusted 7 cents per share on revenue of $569 million.
The stock was down 13% in after-hours trading Wednesday and down 16% in premarket trade Thursday.
Chief Executive James Park told MarketWatch that this latest quarter was the first since 2016 in which the company posted an increase in devices sold. Fitbit will look to better monetize its active user base, which grew 9% in 2018, including through a new paid software offering that is expected to launch in the second half of the year.
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For the current quarter, Fitbit expects an adjusted loss per share of 22 cents to 24 cents on revenue of $250 million to $268 million. That is well lower than analysts’ estimates, which calls for a loss of 15 cents per share on revenue of $272 million, according to FactSet. For the full year, Fitbit projects revenue of $1.52 billion to $1.58 billion, compared with the FactSet consensus of $1.57 billion.
Chief Financial Officer Ron Kisling told MarketWatch that the first-quarter outlook reflects that the March period is typically the slowest for Fitbit, which weighs on margins as the company still has fixed manufacturing costs. He expects gross margins to come up as the year progresses.
Fitbit saw an 8% revenue increase in 2018 from its health-solutions business, which focuses on integrating wearables into insurance and wellness plans. Management expects revenue growth for this area of the company to accelerate in 2019 and reach about $100 million. The health-solutions efforts have been of interest to investors in recent months as they represent Fitbit’s efforts to become less reliant on device sales to consumers, but Wedbush recently downgraded Fitbit’s stock due to a lack of information about the company’s health efforts.
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Park acknowledged that the $100 million target is still less than 10% of the company’s total revenue, but he called it “a pretty significant milestone” and deemed the expected double-digit growth rate healthy. Numerous factors are driving growth in health solutions, according to Park, including the recent introduction of two wearables that were specifically designed for health plans. The company’s Fitbit Care program, which combines coaching and software to help individuals reach their health goals, is also “coming into being,” he said.
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The company ended the quarter with $723.4 million in cash and marketable securities on its balance sheet, roughly 42% of Fitbit’s market value as of Wednesday’s close.
“We feel really good about [the cash position] given the seasonal nature of revenue,” Kisling said. “It’s important that we can invest in growth and opportunities to deepen our relationships with customers, particularly by investing in the services business and growing our reach into health care.”
The stock has gained 29% over the past three months, as of Wednesday’s close, while the S&P 500 index SPX, -0.28% has ticked up 4% in that time.
