Fitness tracker and smartwatch company Fitbit (NYSE:FIT) reported its fourth-quarter results after the market closed on Feb. 27. Fitbit returned to revenue growth and profitability, thanks to its successful smartwatches and deep cost cuts, but growth is expected to remain slow in 2019 as free cash flow turns negative.

Fitbit results: The raw numbers


Q4 2018

Q4 2017

Year-Over-Year Change


$571.2 million

$570.8 million


Net income

$15.4 million

($45.5 million)


Non-GAAP earnings per share




Devices sold

5.6 million

5.4 million


Data source: Fitbit. GAAP = generally accepted accounting principles.

What happened with Fitbit this quarter?

  • While Fitbit sold more devices compared to the fourth quarter of last year, the average selling price declined by 2%, to $100 per device. The company pointed to the launch of the Charge 3 fitness tracker for the decline.
  • New devices, which include the Fitbit Versa smartwatch, the Fitbit Ace, and the Fitbit Charge 3, accounted for 79% of revenue.
  • U.S. revenue declined by 1% year over year, to $328 million. Europe, Middle East, and Africa revenue declined 4%, to $150 million. Asia-Pacific revenue rose 26%, to $49 million, and Americas revenue, excluding the U.S., declined 5%, to $45 million.
  • Non-GAAP gross margin was 38.7%, down from 44.2% in the prior-year period. The mix shift toward smartwatches was responsible for the decline.
  • GAAP operating expenses were $206 million, down from $267.3 million in the prior-year period. Cost-cutting was the main driver of the earnings improvement, along with a small tax benefit.
  • For the full year, 44% of revenue came from smartwatches, up from 8% in 2017.
  • Revenue from accounted for 10% of total annual revenue.
  • The Fitbit Health Solutions business logged 8% growth in 2018.
  • Fitbit ended the year with $723 million in cash, cash equivalents, and marketable securities.
The Fitbit Charge 3.

The Fitbit Charge 3. Image source: Fitbit.

What management had to say

Fitbit CEO James Park provided an outlook for the Health Solutions business during the earnings call: "We expect the growth of our Health Solutions business to accelerate, driven by global growth and the addition of solutions-based software revenue. As a result, we anticipate that there will be double-digit revenue growth for Fitbit Health Solutions to approximately $100 million in 2019."

CFO Ron Kisling discussed expectations for the smartwatch business in 2019: "We expect smartwatches to become more than 60% of our revenue, negatively impacting gross margins but favorably impacting device unit growth."

Fitbit expects its non-GAAP gross margin to be around 40% for the full year, down slightly compared to 2018.

Check out the latest Fitbit earnings call transcript.

Looking forward

Fitbit provided the following guidance for the first quarter of 2019 and the full year:

  • First-quarter revenue between $250 million and $268 million, up 1% to 8% year over year. The number of devices sold is expected to increase, while the average selling price per device is expected to decrease.
  • First-quarter non-GAAP earnings per share is expected to come in at a loss between $0.22 and $0.24.
  • Full-year revenue is expected between $1.52 billion and $1.58 billion, up 1% to 4% year over year. Devices sold is expected to increase, and the average selling price is expected to decrease.
  • Full-year free cash flow is expected to be a loss between $40 million and $70 million, down from a profit of $60.3 million in 2018. The company won't enjoy as large a benefit from working capital this year as it did in 2018.

Fitbit has quickly grown its smartwatch business, but its tracker business is still in decline. That will continue to put pressure on the bottom line, as smartwatches aren't as profitable for the company.

Fitbit is expecting sluggish growth in 2019, and free cash flow will once again turn negative. The company is making progress turning itself around, but the road ahead is clearly a long one.