Fitbit Profit Forecast Trails Estimates, Shares Gasp

Technology Reuters

Wearable fitness device maker Fitbit Inc's profit forecast for the current quarter fell far short of analysts' estimates, overshadowing a strong first-quarter report, sending the company's shares down 13 percent in after-hours trading.

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Fitbit has been spending heavily to diversify its portfolio of colorful wristbands and clippable devices that track calories, sleeping patterns and heart rate, to better compete against rising competition as well as to tap new markets and demographies.

"The time to invest is now," Chief Financial Officer Bill Zerella said in an interview.

Zerella said Fitbit would need to ramp up investments in markets such as China and India as it builds a "global brand."

Fitbit's operating costs nearly tripled to $215 million in the first quarter ended April 2, largely due to spending on marketing the $200 Blaze smartwatch and the Alta wristband, the company's first global launches.

The San Francisco-based company also bolstered its R&D headcount, which jumped to more than 750 in the quarter from about 300 a year earlier.

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Fitbit is facing stiff competition from Apple Inc's Apple Watch line as well as from Garmin Ltd and Under Armour Inc.

Fitbit's stock had fallen 42 percent this year through Wednesday's close of $17.10, mainly due to concerns over competition and mixed reviews for Blaze.

The stock had gained 28 percent since the company said in March it shipped 1 million units each of Blaze and Alta.

Short interest - a measure of shares being held by investors who are betting they will fall - remains high in Fitbit at about 17 percent of shares outstanding.

Fitbit forecast adjusted profit of 8-11 cents per share for the second quarter, widely missing analysts' average estimate of 26 cents, according to Thomson Reuters I/B/E/S.

Despite the tepid current-quarter profit expectation, the company slightly raised its forecast for full-year revenue and profit.

Net income attributable to common stockholders fell to $11 million, or 5 cents per share in the first quarter, from $15.6 million, or 22 cents per share.

Excluding one-time items, Fitbit earned 10 cents per share, breezing past analysts' average expectation of 3 cents.

Revenue jumped 50 percent to $505.4 million, beating the average estimate of $443.1 million.

The company said it sold 4.8 million connected health and fitness devices in the quarter.

Worldwide wearable devices sales are expected to grow 18.4 percent in 2016 to 274.6 million, according to research firm Gartner.