Shares of fitness company Fitbit Inc (NYSE:FIT) have jumped 16.2% so far in 2018, according to data provided by S&P Global Market Intelligence. This is a nice recovery for a company struggling to make money long term.
Fitbit has struggled since late in 2016 when its revenue started falling and a solidly profitable business turned into a money-losing operation. In the first quarter of 2018, revenue was down 17.1%, to $247.9 million, and net losses rose over $20 million, to $80.9 million, or $0.34 per share. But past results aren't what investors were focused on when trading the stock this year.
In early June, management said they had shipped over 1 million Fitbit Versas, less than two months after launch. The Versa is a smartwatch that could end up making or breaking Fitbit's business, so the sales momentum is a strong sign for the company.
Versa is the biggest driver of Fitbit this year, but it didn't hurt that Fitbit announced a partnership with Google to advance digital health and wearables. Having Google on your side is never a bad thing in a technology business.
Right now, Fitbit's stock has risen on speculation that financial performance will improve in the future. The challenge for the rest of the year is turning that speculation into reality. You can see below that the net losses Fitbit has been incurring aren't sustainable for very long, so Versa needs to help get the company close to profitability.
As good as the news is about Versa, I would like to see Fitbit show the ability to make multiple products that generate strong demand and gross margin before I jump into the stock. There are too many ups and downs in the product business to get excited about one product that could be a one-hit wonder.