Please ensure Javascript is enabled for purposes of website accessibility

Fitbit Misses Estimates in Fourth Quarter

By Evan Niu, CFA - Feb 22, 2020 at 11:00AM

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

But it won't matter if Google can close its proposed $2.1 billion acquisition.

Compared to other consumer electronics makers, Fitbit (FIT) didn't have a great holiday shopping season. Last week, the company reported fourth-quarter earnings results that missed expectations. But shares hardly budged thanks to the pending acquisition by Alphabet (GOOG -0.30%) (GOOGL -0.31%) subsidiary Google, which said in November that it would acquire Fitbit for $7.35 per share in cash.

Here's how Fitbit closed out 2019.

Various Fitbit Versas

Image source: Fitbit.

Missing on both the top and bottom lines

Revenue in the fourth quarter declined 12% to $502.1 million, which was shy of the $531.7 million in sales that analysts were expecting. That led to an adjusted net loss of $31.5 million, or $0.12 per share, while the market was hoping for an adjusted profit of $0.04 per share.

Devices sold climbed 8% to 6 million, but a 19% drop in average selling price (ASP) to $81 led to the top line shrinking overall. The product mix is shifting toward more affordable devices, and increased promotional activity also took a bite out of revenue. Adjusted gross margin took a major hit, shrinking from 38.7% a year ago to 26.3% last quarter -- a decline of over 12 percentage points. Fitbit attributed the pinched profitability to the ongoing shift to smartwatches, which have higher development costs, as well as increased promotional activity and tariffs.

Devices sold reached 16 million for the full year, and the company now has nearly 30 million active users on its digital health platform. Fitbit refreshed its popular Versa smartwatch late last year, and the Versa 2 is enjoying strong demand, according to CEO James Park. The Fitbit Health Solutions segment, which includes corporate wellness plans and other enterprise offerings, grew 17% in 2019 to reach $95 million.

Can Google and Fitbit close the deal?

Much like in the third quarter, investors largely shrugged at the worse-than-expected results since the pending buyout renders the figures somewhat irrelevant as long as the deal can secure regulatory approval.

Fitbit is not hosting an earnings conference call to discuss the results nor is it providing guidance. The wearable tech company had also canceled its third-quarter earnings call for the same reason. Investors would likely appreciate some details around how that approval process is proceeding, but Fitbit isn't sharing much: "Prior to closing, we do not expect to provide any additional updates on the regulatory process other than during subsequent quarterly earnings reports."

The European Data Protection Board (EDPB) last week also warned that the deal carries a "high level of risk to privacy and data protection," and urged Google and Fitbit to ensure that they meet the stringent user data protections implemented by the European Union's General Data Protection Regulation that went into effect in 2018. Meanwhile, the U.S. Department of Justice is reportedly handling the antitrust review.

The companies still expect to close the transaction at some point in 2020.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and 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.
Alphabet Inc. Stock Quote
Alphabet Inc.
$121.70 (-0.31%) $0.38
Alphabet Inc. Stock Quote
Alphabet Inc.
$122.51 (-0.30%) $0.37

*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
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/17/2022.

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.