Fitbit Stock Has a Lot to Prove on Wednesday

The fitness-bracelet and smartwatch maker reports quarterly results this week, and expectations are high for a change.

Rick Munarriz
Rick Munarriz
Feb 26, 2019 at 12:30PM
Technology and Telecom

If Fitbit (NYSE:FIT) wore a Fitbit, this is when its heart rate would start to accelerate. The pioneer of wearable gadgetry announces financial results shortly after Wednesday's close, and naturally there's a lot riding on what the company has to say.

Fitbit investors may feel as if they are running in circles -- since the stock has suffered double-digit percentage declines in each of the past three years -- but there's hope in the air. The stock is trading 32% higher so far in 2019, and this week's fourth-quarter report will be Fitbit's first big test of the year, to show whether it can justify the recent bullish sentiment. 

Someone wearing a Fitbit Alta fitness tracker.

Image source: Fitbit.

Hitting the checkpoint 

Fitbit's downfall has been well documented. A few years ago folks started wearing fitness trackers, logging their daily activities. The trend took off, putting Fitbit and smaller rivals on the accessories map. Companies started to subsidize the purchase of the trackers, realizing that active employees would boost production and lower health plan costs. Everything seemed to be going along swimmingly until smartwatches began to duplicate a lot of the fitness-tracking functionality. Smartphones also got better at monitoring activity. 

Fitness tracker sales began to wane, and Fitbit had to find new growth drivers. The company has found some success in the smartwatch market, and after seven consecutive quarters of year-over-year declines, the top line finally moved higher in its latest quarter. Fitbit's revenue rose by just 0.3% for the third quarter, but it was the first whiff of a turnaround in nearly two years. Fitbit also surprised Wall Street with a small profit, as investors were bracing for another quarterly loss. 

Check out the latest Fitbit earnings call transcript.

Fitbit can't afford to follow up a head-turning third quarter with a stinker for its fourth quarter this week. Analysts now expect another profit, modeling net income of $0.07 a share for the period. They also see quarterly revenue clocking in at $568.2 million, a mere 0.5% decline form last year's showing.

There's still a niche market for its fitness trackers, and product line updates do tend to spark refreshed interest. Fitbit also seems to have found a sweet spot in smartwatch pricing, well below the category leader. Smartwatch sales now account for nearly half of Fitbit's business. 

Momentum isn't entirely in Fitbit's corner at the moment. Wedbush analyst Michael Pachter downgraded the stock late last week, arguing that shares had hit his earlier price target of $6.50 without any game-changing developments happening on the medical technology front where Fitbit has been trying to cash in on its brand positioning and products. However, the timing doesn't seem coincidental. You don't talk down a stock three trading days before a critical quarterly report if you think it will be a blowout performance. 

Investors may have high expectations, but at least one Wall Street pro needs some more convincing. Your move, Fitbit.