Fitbit beat earnings and sales estimates for the fourth quarter, but as has been the case with most earnings reports this season, investors ran for the hills when they saw the company’s guidance for this year. The fitness wearable maker posted earnings of 35 cents per share, against the consensus of 25 cents, and $711.6 million in revenue, versus the consensus of $647.8 million.
Management guided for first quarter sales of between $420 million and $440 million, missing the consensus of $484 million dramatically. They project adjusted EBITDA of $5 million to $16 million, which came up even further short of the consensus, which was at $92 million.
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Following last night’s exceptionally weak guidance, analysts from multiple firms have downgraded Fitbit stock. Shares plummeted by more than 19% to as low as $13.38 during regular trading hours today.
Fitbit not banking on a big first quarter
Piper Jaffray Senior Analyst Erinn Murphy noted that Fitbit is expected to launch some new products in the first half of this year and said that she was surprised at how weak management’s first quarter guide was because of those launches. She noted that greater expenses are eating into profits in the current quarter, although the second quarter could see “replenishment” on the back of this quarter’s increased marketing efforts.
She slashed her first quarter earnings estimate from 28 cents to 2 cents per share and her full-year estimate from $1.20 to $1.04, putting her below guidance. She’s expecting Fitbit to sell 26.3 million units this year with an average selling price of $88. She estimates 12.2 million units for the second and third quarters combined but added that she’s giving the wearable fitness tracker the benefit of the doubt for now.
As a result of all these changes and the weak guide, she downgraded Fitbit from Overweight to Neutral and cut her price target from $14 to $24 per share.
How bleak does Fitbit’s future look?
Pacific Crest Securities analyst Brad Erickson also downgraded Fitbit to the equivalent of Neutral, adding that he sees the risk of fitness wearables becoming commoditized. Also he believes the company’s leverage is lacking and pointed to poor user metrics as another reason despite the 152% increase in active users in 2015. It had 6.9 million active users at the end of the year. The problem, however, lies in active users as a percentage of registered user devices, which fell to about 58% last year from 61% in 2014. Further, he sees any opportunity from corporate wellness programs as being limited and is highly bearish on the stock even after today’s selloff.
Mizuho Securities slashed its price target on Fitbit from $38 to $20, while Leerink Partners downgraded the stock to Market Perform. SunTrust also cut its price target from $25 to $20.
But not all firms downgraded the stock
One firm that did not downgrade Fitbit was FBN Securities, which retained its Outperform rating but halved its price target from $50 to $25 per share. Analyst Shebly Seyrafi sees opportunities following the more than 40% selloff in the company’s stock over the last three months although he admits that the risks are now higher.
Morgan Stanley analyst Katy Huberty also didn’t downgrade Fitbit, although she trimmed her price target from $35 to $32 per share, citing “conservative full-year guidance, improving engagement metrics, and continued corporate/ international optionality” as the reasons why she still likes the stock.
Oppenheimer also remains Buy-rated.