Please ensure Javascript is enabled for purposes of website accessibility

Why Fitbit Stock Is Soaring Today

By Timothy Green – Nov 1, 2018 at 12:14PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The third-quarter report featured some signs of progress.

What happened

Shares of Fitbit (FIT) jumped on Thursday after the fitness wearables company reported its third-quarter results. Fitbit beat analyst expectations for both revenue and earnings, producing a surprise adjusted profit. The stock was up about 22.4% at 12:40 p.m. EDT.

So what

Fitbit reported third-quarter revenue of $393.6 million, up 0.3% year over year and about $12.4 million higher than the average analyst estimate. Device unit sales were 3.5 million, down from 3.6 million in the prior-year period, but a 3% increase in average selling price (ASP) offset that decline. That ASP increase was driven by a shift in mix toward smartwatches and away from cheaper fitness trackers. Smartwatches accounted for 49% of revenue in the quarter, up from less than 10% in the prior-year period.

The Fitbit Versa.

The Fitbit Versa. Image source: Fitbit.

Non-GAAP earnings per share came in at $0.04, up from a loss of $0.01 in the prior-year period and $0.05 better than analysts were expecting. Non-GAAP gross margin plunged more than 5 percentage points thanks to higher smartwatch sales, but that was offset by lower operating expenses.

Fitbit has made strides in the U.S. smartwatch market, according to CEO James Park: "We are now the number two player in the smartwatch space in the U.S., a category we just entered with zero share only 14 months ago. We also launched our most advanced tracker yet, Fitbit Charge 3, which is blurring the lines between trackers and smartwatches and is already one of the top-selling devices in the U.S."

Now what

Fitbit expects fourth-quarter revenue of at least $560 million, and full-year revenue of about $1.5 billion. Those numbers compare with $571 million of revenue in the fourth quarter of 2017, and $1.62 billion in 2017. Non-GAAP EPS of $0.07 is expected for the fourth quarter.

While Fitbit's revenue is still not really growing, the company's Versa smartwatch is clearly a hit. A lower gross margin will be a headwind as the company tries to boost its profits, but Fitbit is making some progress cutting costs. That's a good sign, one that investors rewarded on Thursday.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Fitbit. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Fitbit, Inc. Stock Quote
Fitbit, Inc.
FIT

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.