Fitbit was soaring Thursday, up more than 12% ahead of the opening bell, after reporting third-quarter results that beat on both the top and bottom line and reaffirming its full-year revenue guidance. The fitness-tracker maker earned an adjusted $0.04 a share on revenue of $394 million, easily beating the $0.01 loss and $381.2 million that was expected by the Bloomberg consensus.
Fitbit reaffirmed its full-year revenue guidance of $1.5 billion, edging out the $1.49 billion that Wall Street analysts were hoping for.
“We have been incredibly focused on executing our transition plan and as a result, saw a return to profitability this quarter, and are re-affirming our full year revenue guidance of $1.5 billion,” cofounder and CEO James Park said in the earnings release.
“We succeeded in growing our healthcare business by 26% and diversifying our revenue to compete in the changing wearables category and saw sequential growth in both tracker and smartwatch devices.”
Fitbit said it sold 3.5 million wearable devices during the quarter, and that the average selling price increased by 3% to $108. Its Fitbit Versa, Fitbit Charge 3, Fitbit Ace, and Fitbit Aria 2 — all launced within the past year — represented 62% of revenue. “We are now the number two player in the smartwatch space in the U.S. – a category we just entered with zero share only fourteen months ago,” Park said. Fitbit was down 17.16% this year through Wednesday.
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Fitbit finally returns to profit thanks to the Versa. The question is whether or not it can keep the momentum going.
Fitbit was hoping it would return to profit after many months of losses, and it turns out that faith was well-placed. The wearable maker earned a net profit of $10 million for the third quarter of 2018, beating both its $2.8 million loss from a year earlier and the stiff 54.2 million loss from this spring. And it’s not shy about why it went from red ink to black — Fitbit mostly owes the recovery to smartwatches, and the Versa in particular.
The company sold slightly fewer devices than it did a year ago (3.5 million versus 3.6 million), but the ratio of smartwatches went up. It was making more money from each sale, even if it wasn’t moving as many devices as it once was. Versa sales clearly led that charge, with the lower-cost watch outperforming rivals from Garmin, Samsung and Fossil in the US. Fitbit was second only to Apple in the country, which is no mean feat for a company that debuted its first watch (the Ionic) 14 months ago and, to put it mildly, stumbled out of the gate.
Whether or not Fitbit can stay above water isn’t certain. The Versa’s $199 price and fitness focus help, but it also spent much of Q3 competing against old-in-the-tooth rivals. The Apple Watch Series 4 had only been out for a couple of weeks before the quarter was over. Now, Fitbit has to compete against both the Series 4 and rivals like Samsung’s Galaxy Watch during a full, fierce holiday quarter.
There’s also the matter of selling enough smartwatches in the long run. Fitbit was quick to acknowledge that its fitness tracker sales will likely keep dropping during the holidays, and that the uptick in smartwatches won’t necessarily make up the difference. It needs to keep growing its watch business if it’s going to thrive, and that’s not guaranteed to happen given the competitive landscape.