Good News and Bad News for Fitbit, Inc.

Charge 2. Image source: Fitbit.

The fourth quarter remains an open question for Fitbit (FIT). Fitbit's guidance for the holiday shopping season left quite a bit to be desired. Channel inventories could also potentially be a bit high, which would affect first-quarter results if retailers don't need to restock all that much.

Given an environment of pessimism, a little bit of good news could go a long way. Shares jumped by a solid 7% yesterday on hopes that Fitbit devices proved to be popular gifts over the Christmas weekend. Recode reported on Christmas day that Fitbit's free app had soared to the top of the App Store charts, potentially suggesting that its products fared particularly well. Recode's Ina Fried noted that the other top apps had nothing to do with physical gifts.

Fitbit's app falls to No. 6. Image source: App Store screenshot.

Of course, the charts fluctuate quite a bit, and as of this writing, Fitbit's ranking has fallen to No. 6. While not really a meaningful metric, for what it's worth the number of reviews has tripled. Directionally, those are good signs, even if they lack specificity.

One place where Fitbit didn't make the cut

The optimism was short lived, however, as shares gave back much of those gains today. While there's no obvious company-specific news to explain the decline, CFRA Research (which recently acquired S&P Global Market Intelligence's research division) analyst Scott Kessler released a research note yesterday during market hours (via Tech Trader Daily) that threw some cold water on the hopes.

While acknowledging the seemingly bullish evidence, Kessler also points out that Fitbit failed to make Amazon.com's holiday best-seller list. The e-commerce giant put out a press release yesterday to brag about how well it did over the holidays, noting that it shipped over 1 billion items through Prime and FBA. The company noted the top sellers within a wide range of categories, and for wearable technology Garmin earned several mentions with its Vivofit activity tracker and Vivoactive GPS-enabled smartwatch.

Fitbit certainly has many distribution partners, but it's safe to say that the e-commerce giant is a global destination for gift shopping; Fitbit's absence doesn't inspire a lot of confidence, despite a surge in App Store rankings. Three (unnamed) retailers accounted for 37% of revenue last quarter, according to Fitbit's most recent 10-Q.

New Year's resolution: be more active (on Fitbit's platform)

Investors have a little bit of good news alongside a little bit of bad news. The conflicting data points are both somewhat anecdotal, so investors shouldn't put too much weight on either of them. The good news is that within a couple of months, investors will get some useful data points regarding the user base. Fitbit discloses active users in its annual reports, so seeing how this number changes will be quite important, even if the company downplays the importance of the metrics. (In its filings, Fitbit says, "We believe that the active user and registered device user metrics are indicators of the potential size of our community, but currently we do not believe that these have a direct effect on our revenue and operating results."

Shortly after its IPO last year, I noted a big (and growing) gap between active users and registered users, suggesting that a lot of Fitbit devices go unused shortly after purchase. For reference, here's how the two figures have compared over the past three years, and active users have unquestionably surged.

Data source: 2015 10-K.

The 2015 10-K, which was filed in late February of 2016, was Fitbit's first annual report as a public company, so presumably the company will file its 2016 10-K around late February in 2017. Getting in better shape is one of the most popular New Year's resolutions, which naturally plays into Fitbit's strengths. Sadly, it's also incredibly common for people to give up on that goal within a matter of months (usually around February). This drop off won't be captured in the 10-K, since the filing will be dated as of the end of December 2016.

Either way, Fitbit's fourth-quarter release can't come soon enough.