Image source: Fitbit.

It's going to be a blue Christmas for Fitbit (NYSE:FIT), and investors are strapping on their fitness trackers as they sprint out of the stock in after-hours trading. Every point counts!

Shares of the wearable tech giant slumped after posting disappointing financials following Wednesday's market close. The numbers were ugly. Let's break down the reasons why the market is cooling on the former market darling. 

1. Guidance is abysmal

The biggest dagger in Fitbit's report is its troublesome outlook for the holiday quarter. It's expecting between $725 million and $750 million in revenue, a mere 2% to 5% growth spurt. The news only gets worse on the bottom line, as the $0.14 to $0.18 a share that Fitbit is now eyeing in adjusted earnings is roughly half the $0.35 a share it generated a year earlier.

Fitbit didn't offer guidance for the fourth quarter following its second-quarter report three months ago, but since it did put out an outlook for the third quarter and all of 2016, you don't need a math degree to figure this one out. Subtract its results through the first half of the year and its guidance for the third quarter from its early August guidance and you arrive at  $898.1 million to $1,081.1 million in revenue and an adjusted profit of $0.71 to $0.85 a share. 

Ouch! Fitbit fell well short of what analysts were expecting, but more importantly it totally blew its own guidance that Wall Street pros were relying on. It's going to be hard for analysts to trust Fitbit's guidance now. 

2. Margins keep contracting

A whopping 79% of Fitbit's revenue during the third quarter came from the Blaze smartwatch and Alta tracker that it introduced during the first quarter along with the Flex 2 and Charge 2 trackers that it introduced in September. This may seem to be good news -- the market's receptive to Fitbit's updated product lines and its first smartwatch -- but profitability is going the wrong way. Gross margin may be in line with where it was a year earlier for the third quarter, but net margin is slipping.

Fitbit still landed at the high end of revenue guidance for the third quarter and at the top of its adjusted earnings-per-share range. Margins are narrowing, but it happened to the degree that Fitbit was expecting for the third quarter. The problem here is that its guidance for the fourth quarter calls for margins to get squeezed even harder.  

3. Fitbit will be selling fewer devices this quarter than last year 

Fitbit's revenue may have climbed 23% in the third quarter, but it didn't sell 23% more wearable tech devices. Fitbit actually sold just 11% more devices. The average selling price padded that by surging 11% higher. 

It's great to see Fitbit able to command higher prices for its products, and that may be a silver lining in an otherwise bleak report. Things are competitive in this niche, but we're not in a price war. However, by targeting no more than 5% growth during the fourth quarter, we're likely looking at a decline in the number of devices sold bailed out by higher average selling prices.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.