Fitbit Beats Q4 Earnings But Guides Lower, FIT Shares Hit

Top wearables company Fitbit (FIT – Analyst Report) reported Q4 earnings results after the bell Monday, with another big beat on the top and bottom lines — just as the company had provided in its two previous quarterly reports since its IPO last year. But guidance for Q1 came in lower than analysts had been expecting, and this has sent shares of FIT tumbling in the after-market.

Earnings per share of 29 cents (accounting for stock-based compensation and other before non-recurring items [BNRI]) easily topped the Zacks consensus estimates of 20 cents per share, and revenues of $712 million far outpaced the $645 million expected. Yet Q1 guidance came in well below estimates as Fitbit expects additional manufacturing costs to match its new products production. Those new products, Blaze and Alta, are yet unproven entities in the market.

Further, gross margin, which had been expected to remain around the 48-49 percent range in Fitbit’s Q4, fell to 46.5 percent. Consider that the company had enjoyed a 50.2 percent gross margin in Q1 of last year, and it’s clear Fitbit is now being somewhat affected by competition. This is something not likely to go away soon.

Thus, FIT shares are down 14 1/2 percent since the earnings announcement, on top of a 44 percent drop the company has suffered since its IPO. There was a brief time, in fact, when Fitbit shares traded north of $51 per share; it now languishes down in $14 territory. Is this any way to treat a company with 92 percent earnings growth year over year?

In December of last year, Fitbit was deemed the #1 wearable device company by market share: 22.2 percent versus Apple’s (AAPL – Analyst Report) 18.6 percent. Assuming the new Blaze and Alta lines continue to boost interest and purchases for the company, especially in light of production costs eating away into the company’s profits at this time, big yearly growth numbers and exemplary earnings blowouts may again return to the company.

But Fitbit has plenty of investors short on the stock, looking at relative low barriers to entry and unproven new models adding risk to the company’s projections. These shorts were not flushed out of Fitbit stock following the strong earnings beat; will they now feel emboldened based on FIT’s lowered guidance and higher costs?