Fitbit have just announced their 3rd quarter results (Source: Fitbit.com).
I don’t think there is anything particualrly surprising in there (below and linked). But the key to seeing the signs of success will be in a few months time, or even a year’s time, as the new stuff comes though.
Clearly the new ‘stuff’ starts with the Fitbit Ionic (reviewed recently). The Ionic is quite nice in some respects although one reason shares recently dropped by about 5% may have been because of the not-too-awesome reception it received from other reviews in the ‘mainstream media’ (not meaning DCR).
The next tranche of new stuff is announced by Mr Park (CEO) to come next year – that is also covered my the same Fitbit review. But there will also be an adidas collaboration with the Ionic, probably materialising in Q1.2018.
The numbers are not overly pretty:
Third Quarter 2017 Financial Summary
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||
| In millions, except percentages and per share amounts | September 30, 2017 | October 1, 2016 | September 30, 2017 | October 1, 2016 | |||||||||||||
| GAAP Results | |||||||||||||||||
| Revenue | $ | 392.5 | $ | 503.8 | $ | 1,044.8 | $ | 1,595.7 | |||||||||
| Gross Margin | 44.5 | % | 47.8 | % | 42.3 | % | 45.1 | % | |||||||||
| Net Income (Loss) | $ | (113.4 | ) | $ | 26.1 | $ | (231.7 | ) | $ | 43.5 | |||||||
| Net Income (Loss) Per Share – Diluted | $ | (0.48 | ) | $ | 0.11 | $ | (1.00 | ) | $ | 0.18 | |||||||
| Non-GAAP Results | |||||||||||||||||
| Gross Margin | 45.2 | % | 48.1 | % | 43.0 | % | 45.4 | % | |||||||||
| Net Income (Loss) | $ | (2.8 | ) | $ | 45.7 | $ | (56.5 | ) | $ | 99.8 | |||||||
| Net Income (Loss) Per Share – Diluted | $ | (0.01 | ) | $ | 0.19 | $ | (0.24 | ) | $ | 0.41 | |||||||
| Adjusted EBITDA | $ | 5.9 | $ | 80.8 | $ | (74.6 | ) | $ | 174.2 | ||||||||
| Devices Sold | 3.6 | 5.3 | 10.0 | 15.8 | |||||||||||||
But often the number say very little that the analysys did not already know and expect. What are slightly more interesting are the notes. Again I’ve taken out the most interesting from Q3. In case you’ve not yet had your coffee I’ve uwsed bold to make it easier:
- U.S. revenue grew 23% to $244 million, EMEA revenue contracted (18%) to $89 million, APAC revenue grew 63% to $34 million, and Americas excluding U.S. revenue grew 4% to $25 million, all sequentially from the second quarter of 2017.
- Sold 3.6 million devices, up 7% sequentially from the second quarter of 2017.
- 42% of the activations in the quarter came from customers who made repeat purchases. Of the repeat purchasers, 39% came from customers who were inactive for 90 days or greater.
- The Fitbit app was the #1 downloaded health and fitness application, based on U.S. downloads, on both the iOS and Android platforms.
- New products introduced in the last 12 months, Fitbit Alta HRTM, and Fitbit IonicTM represented 32% of revenue.
Fitbit’s view for their year ahead is also slightly rosier:
Full Year 2017 Guidance
- Revenue guidance of $1.615 billion to $1.645 billion.
- Non-GAAP gross margin of 42.5% to 44%.
- Tightening non-GAAP net loss per share to the range of ($0.27) to ($0.23).
- Tightening non-GAAP free cash flow loss to a range of ($50) million to ($30) million.
If they don’t start to hit their forecasts then they’ll have to call Houston to solve their problem.
Opinion:
Having played with the Ionic I somewhat turned away from my negativity towards Fitbit to thinking they could be on to something. (A proper app store is still expected in 2017). Looking at the above ‘stuff’ and remembering previous official Fitbit ‘stuff’, they DO have a loyal customer base. Having customers who you can rely on (like Apple) is important. For example I suspect (but do not know) that Garmin’s brand loyalty is nto as high.
I’m just about to go out to Starbuck and get my first ever NFC-bought Latte using the Ionic and Starling Banks card (UK). Now you know.
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While the Ionic was announced at the end of August, I thought it actually hit stores on October 1, so it’s a little odd to see it show up in the Q3 numbers (which would end on Sep 30). However, one thing is clear from Fitbit and Garmin’s earnings. Low end activity trackers have fallen off a cliff. Fitbit’s earnings down 20% Y on Y and Garmin’s Fitness segment were down 11%. Garmin’s Fitness segment includes the Forerunner line otherwise it’d probably be down 20% as well.
Garmin obviously has a much larger breadth of product and the downturn in low-end Vivo’s can be viewed as a market rotation from one product category to another. In the conference call, they said that lumping Fitness with Outdoor would give a better indication of their overall wearable market. Those two together were up 7% Year-on-Year. Garmin is dealing with a precipitous decline in Auto, but even with that, a transition from “Fitness” to “Outdoor” doesn’t really hurt them as the overall sales are steady. They’d just be better off if both “Fitness” and “Outdoor” are growing, but they can ride out the transition.
Fitbit, on the other hand is a much more focused company and if they see a rotation from low-end to high-end, then their margin of error is a lot less. They’d better have a hit with the Ionic or there’s going to be some hard discussions inside HQ.
I thought both quarterly releases were exercises in spin and deflection by the way.
The Ionic won’t be in the stats for the reason you state. Reception of the Ionic WILL affect sentiment and hence share price. As you rightly point out Fitbit have a lot riding on the Ionic.