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Fitbit: Just Treading Water

Aug. 02, 2018 11:41 AM ETFitbit, Inc. (FIT)AAPL, GOOG, GOOGL27 Comments
Bill Maurer profile picture
Bill Maurer


  • Q2 beat mostly as expected.
  • Management maintains full year guidance.
  • The future seems murky at best.

One of Thursday's biggest losers so far is wearable device maker Fitbit (NYSE:FIT). While the company announced a top and bottom line beat for its second quarter results like it usually does, a lack of long term progress continues to plague the name. With competition set to further increase, there just doesn't seem to be much optimism for the name currently.

For the quarter, revenues of $299 million were $13 million ahead of street expectations and above the high end of management's guidance. The Versa smartwatch is doing quite well, perhaps the best launch in company history. However, even at its $199 price point, it wasn't enough to help the overall story, as average selling prices declined about 5% from Q1 2018.

The biggest problem right now is that the company just cannot get to profitability, even on a non-GAAP basis. The Q2 GAAP loss was $118 million, a staggering amount on less than $300 million in revenue. Losses were tremendously more than the prior year period, mostly fueled by revenue declines, but gross margins also fell thanks to the higher cost of smartwatches. The tracker business may have bottomed for now, but is still experiencing a big decline.

Management increased its capital expenditure forecast for the year, mainly to help increase production, but this means that non-GAAP free cash flow will now be about negative $20 million, versus prior expectations for being flat. On a GAAP basis, the company will actually receive a bit of cash, mostly thanks to a major tax refund payment, but that is not a recurring item. The balance sheet is a bit weaker now than it was a couple of years ago.

The major problem for Fitbit is that competition is only increasing at this point. The Apple (AAPL) Watch is expected to

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Bill Maurer profile picture
I am a market enthusiast and part-time trader. I started writing for Seeking Alpha in 2011, and it has been a tremendous opportunity and learning experience. I have been interested in the markets since elementary school, and hope to pursue a career in the investment management industry. I have been active in the markets for several years, and am primarily focused on long/short equities. I hold a Bachelor of Science Degree from Lehigh University, where I double majored in Finance and Accounting, with a minor in History. My major track focused on Investments and Financial Analysis. While at Lehigh, I was the Head Portfolio Manager of the Investment Management Group, a student group that manages three portfolios, one long/short and two long only. I have had two internships, one a summer internship at a large bank, and another helping to manage the Lehigh University Endowment for nearly a year. Disclaimer: Bill reminds investors to always do their own due diligence on any investment, and to consult their own financial adviser or representative when necessary. Any material provided is intended as general information only, and should not be considered or relied upon as a formal investment recommendation.

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