One of last week's biggest winners was Fitbit (FIT), soaring 33.8% following a blowout financial report. A generally buoyant market the past few days also hasn't hurt, as Fitbit stock has moved sharply higher in the past four trading days.
Last week's pop finds the shares now in positive territory in 2018, but they're also just making back some heavy losses in recent weeks. The stock is essentially back to where it was in mid-September. Let's go over some of the reasons why the market is warming up to Fitbit again.
1. Bid farewell to negative trends
There were a lot of rough streaks working against Fitbit heading into Wednesday's quarterly report. The wearable fitness pioneer had rattled off seven consecutive quarters of year-over-year revenue declines. Analysts were bracing for a 3% dip this time around, stretching the quarterly streak to eight. Wall Street pros were also holding out for another quarterly deficit. Fitbit surprised them with small profit.
Fitbit didn't end its losing streaks on both ends of its income statement in spectacular fashion. Revenue rose a mere 0.3% to $393.9 million. Fitbit earned $0.04 a share on an adjusted basis. A beat is still a beat. Top-line growth and a return to profitability will always be good looks for an out-of-favor company.
2. Smartwatches are driving the turnaround
Fitbit's flagship fitness trackers have been fading in popularity since peaking in 2016, and we're still not at the point of growth on that front. The revenue growth driver for Fitbit these days is the smartwatch market, and after a couple of false starts in this niche, it finally hit the right combination of features and price with Fitbit Versa.
Fitbit is a distant second when it comes to smartwatches, but that's more than enough right now. Fitbit has seen smartwatches go from 10% of its total revenue to 49% of its top-line results over the past year.
3. Let's spread some holiday cheer
The only thing better than ending losing streaks is starting winning streaks. Fitbit expects to post adjusted earnings of at least $0.07 a share in the fourth quarter, so we're talking about back-to-back profitable quarters after nearly two years of red ink.
Fitbit's revenue target for the period calls for at least $560 million in the fourth quarter. It did ring up $570.8 million a year earlier, but Fitbit has been conservative with its guidance lately. If its Versa smartwatch continues to gain traction and Fitbit scores another holiday hit or two across its product lines, it could post its second consecutive quarter of top-line growth.
Fitbit appears to have turned the corner of profitability. Its entry into the smartwatch market is finally resonating with consumers. We're heading into the telltale holiday-containing quarter, and Fitbit has momentum on its side.