Fitbit's (NYSE:FIT) comedy of errors continues. The wearable-device maker spent 2017 playing catch-up as consumers have come to expect more from a fitness tracker. The one-time leader in the industry has given up ground to Apple's Watch, Alphabet's Android devices, and other competitors in recent years, but optimism emerged when Fitbit released its first smartwatch, the Ionic, just in time for the 2017 holiday shopping season.

The company reported results from the holiday quarter recently and while sales got a boost, it was not as much as was hoped for.

A look at the numbers

Fitbit's revenue for the quarter was $570.8 million, driven by the sale of 5.4 million devices. Both were decreases from the year-ago period, but as a result of the higher-priced Ionic and optional Flyer headphones, the average selling price per device increased 20% year over year to $102.

A bar chart showing Fitbit's revenue and devices sold the last two years. Year-over-year, both are negative.

Chart by author. Data source: Fitbit quarterly earnings.

The bad news is that Fitbit barely met its own guidance for the all-important holiday shopping season. The outlook was for $570 million to $600 million in revenue, so Fitbit just barely made it over the low end. Adjusted earnings-per-share guidance was for a loss of $0.03 to a $0.01 gain. The result was a loss of $0.02.

Also not great news was that revenue from new devices -- Ionic, Flyer, Alta HR, and Aria 2 -- made up 36% of total revenue. That's up only a few percentage points from 32% from new products in the third quarter, which was not a full quarter's worth of sales for the Ionic and Flyer. This would imply that the Ionic -- currently priced at $299.95, $100 more than the company's next most expensive wearable -- is replacing sales of other new products rather than providing a boost to total devices sold.

Management as much as confirmed that implication when it said it expects little new revenue generation from new products during the first quarter of 2018. Revenue is expected to drop 15% to 20% from the same period last year, to $240 million to $255 million.

A Fitbit Ionic displayed in blue and gold.

Image source: Fitbit.

What's next for Fitbit?

Part of boosting sales of its new marquee wearable will be making continuous improvements to the Ionic and adding content to the new accompanying app store. Fitbit also needs to start delivering on its message that it is a healthcare company, not just a seller of tech hardware. Some of the Ionic's features move the company in that direction, but this quarterly report shows that device sales are still the name of the game.

That is part of the reason the company recently announced it was purchasing Twine Health, a connected healthcare platform that provides coaching and other related services. The hope is the acquisition will help make Fitbit's devices a more integrated part of the healthcare industry and increase subscription-based revenues.

The saving grace for Fitbit is that it is still early on as a seller of actual smartwatches. It has narrowed its net losses, and free cash flow is positive again. But investors certainly could have been treated to a better first showing from the Ionic. Thus, Fitbit still needs to prove it can hang with its bigger competition and make good on connected-healthcare revenue growth.

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