Shares of Fitbit (FIT) plunged nearly 21% on Feb. 23 although the fitness tracker maker soundly beat top and bottom line estimates during its fourth quarter. Revenue rose 92% annually to $711.6 million, crushing expectations by $63.8 million. Non-GAAP net income doubled to $87.4 million, or $0.35 per share, which beat estimates by $0.10. Non-GAAP gross margin also expanded annually for the quarter and the full year.
Source: Company websites.
Unfortunately, Fitbit's first quarter guidance for $420 million to $440 million in sales missed the consensus estimate of $484.6 million. On the bottom line, Fitbit's EBITDA forecast for $5 million to $16 million came in far below expectations for $89.9 million, while its EPS forecast of $0.00 to $0.02 missed the forecast for $0.23 per share. Fitbit blamed those big misses on pricey media promotions and higher manufacturing costs related to the launches of the Blaze and Alta. It also noted that due to the timing of the shipments meant that the majority of its reorders would be pushed back to the second quarter.
That bleak forecast sparked a wave of downgrades and unflattering comparisons to action camera maker GoPro (GPRO -2.86%). But is that comparison really fair? Let's take a look at the two companies' key similarities and differences to decide.
How Fitbit and GoPro are similar
Fitbit and GoPro were both first movers in their respective markets. But as Fitbit's trackers and GoPro's cameras grew in popularity, more competitors entered the market with cheaper and more imaginative devices. Both companies lacked a meaningful moat against those rivals, which fueled concerns that they would need to sell cheaper devices and spend more on marketing to remain relevant.
During the last two quarters of 2015, GoPro admitted that its ice cube-sized Hero 4 Session was priced too high and not properly marketed. That's why the company slashed the camera's price tag twice, from $400 to $200, and spent more money on ads. As a result, GoPro posted GAAP and non-GAAP net losses last quarter. GoPro also admitted that it was selling too many cameras at different price points, and announced that it would discontinue its three low to mid-range cameras in April.
The Hero 4 Session. Source: GoPro.
Fitbit launched the Blaze and Alta earlier this year, which expanded its total number of wearable trackers to eight. Those devices, which cost between $60 and $250, are aimed at reaching as many different customers as possible -- which is the same thing GoPro attempted with six cameras last year.
Like GoPro, Fitbit must convince its existing users to upgrade while appealing to more "mainstream" customers. That task can be tough when consumers consider their old devices "good enough" or buy cheaper ones from low-cost rivals. Both Fitbit and GoPro also face the threat of smartphones' motion-tracking chips and high-end cameras rendering their devices obsolete. Fitbit faces the additional challenge of smartwatches with integrated fitness tracking features.
How Fitbit and GoPro are different
The key difference between Fitbit and GoPro is that Fitbit has a "stickier" ecosystem than GoPro, which mainly relies on its YouTube channel to keep users stuck to its brand.
At the end of 2015, Fitbit's total registered device users rose 164% to 29 million. Fitbit defines a "registered user" as someone who becomes a paid subscriber of Fitbit Premium, a paid subscriber to FitStar, or uses the tracker or Aria scale with a Fitbit account. Total "active" users rose 152% to 16.9 million. While those numbers look solid, 16.9 million only represents 58% of Fitbit's total registered users, which suggests that a large number of devices aren't being used on a regular basis. However, Fitbit might be able to boost those figures by selling bulk orders of trackers through its corporate wellness programs, which gained 1,000 new enterprise customers last year.
Fitbit's sales growth also hasn't dropped to GoPro-like levels just yet. The company expects its sales to rise 29% to 34% annually in 2016. That's a notable slowdown from 149% growth in 2015, but it looks much better than GoPro's projected sales decline of 15% for 2016. However, full year sales estimates can be tricky, and they might be revised downwards if new devices like the Blaze and Alta fall short of expectations.
Is Fitbit the next GoPro?
Fitbit shares will likely remain under pressure until the company can prove that its bottom line isn't about to slide into the red. The good news is that Fitbit is starting off 2016 with new devices, which could support its sales for the next few quarters.
GoPro, which didn't launch any new flagship devices last holiday season, must rely heavily on the upcoming launches of the Karma drone and Hero 5 to boost its top line growth again. However, those two products might enter the saturated drone and action camera markets far too late. Therefore, Fitbit hasn't turned into GoPro just yet, but I would still avoid this stock until it can stabilize its top and bottom line growth.
