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Fitbit 2Q17 report +3

17:48 02-Aug-17


The Fitbit conference call has just concluded.  The call confirmed smart watch market entry for the holiday season with (in my descending order of importance):

Pricing is the key metric that is still missing, but I'm confident management has a good handle on what the market will support.  They also projected a substantial SDK for third-party developers would be made available at launch and reported no technical difficulties, despite media smear reports to the contrary.

I was also encouraged by Fitbit's focus on data and its collaborations with over 700 organizations.  While I don't necessarily buy into the hype surrounding health improvement from the current generation of devices, I do think the state of the art has been improving.  In particular, management commented on interest from partners for artificial intelligence applications based on FitBit's broad and increasing base of data.

Most important to me is the $676M in cash and equivalents on the balance sheet, down from $726M in the first quarter.  Operating expenses were lower than management forecast.  Less was spent on advertising, which is impressive given the quarterly results.  Expenses will ramp back up going into the smart watch launch, but FY cash consumption is just a small fraction of the balance sheet, so no dilution should be necessary.

Finally, 86% of eligible options were exchanged for restricted stock units.  Picking up tech talent and assets on the cheap are what flipped me from a short to long stance on the company.  So inexpensive employee retention is important.  All of this serves to maintain my positive stance on FIT below $6.

On 08/02/2017 04:36 PM, Esekla wrote:

Fitbit has announced its second quarter financial results:

  • a loss 8 cents per share, beats by 7 cents
  • on revenue of $353M, which beats by $12M
  • quarterly guidance is for a loss of 2-5 cents per share
  • on revenue of $390M +/- $10M, which misses by $3M
  • FY guidance of $1.625b in sales slightly exceeds the average $1.61b estimate

Management reports that demand was better than expected, allowing the company to reduce the inventory I was worried about at better margins both sequentially and YoY.  International sales seem to have come to the rescue.  However, the company still sold 40% fewer devices than a year ago.  The Fitbit's remains the most downloaded health and fitness app for both Android and iOS.  In its Community section, which just opened in March, over 2.5M users have joined a group, and 11.2M have used the feed.

There were no details in the press release about the upcoming smart watch.  As projected, Garmin confirmed strong demand for wearables in its new product line this morning.  Google has also hired Pebble's former lead developer, though supposedly with more of a Home focus.  When I look at the market in combination with the data above, I continue to think that these quarterly numbers matter little, and that FIT is a long-term investment whose prospects live or die by how good that product turns out to be.

The conference call is at 5pm, and if nothing else I will report again on the balance sheet and how much Fitbit is spending in the development effort.  All I can say for the time being is these results and the full year guidance seem to confirm the positive outlook that I've espoused.