Fitbit stock plummets to all-time low

Investors in wearables firm Fitbit probably just had quite a restless night after the company’s stock lost over 30 per cent – almost $1 billion – in the space of 10 minutes.

The company reported its third quarter results yesterday which were in line with analyst expectations. Revenue is up 23 per cent to $504 million and adjusted earnings per share of 19 cents. Its new products such as the Charge 2 and Flex 2 sold fairly well.

What sent the stock price into freefall however was in Fitbit’s guidance about the fourth quarter, arguably the most important to a tech company. Up until now, Fitbit had been a fast grower but there had been doubts about profit margins. For the fourth quarter, Fitbit said that it expected sales to grow only 2 per cent to 5 per cent from last year. By contrast, Fitbit’s sales increased 92 per cent last year compared to the fourth quarter of 2014. 

CEO James Park attempted to explain the drastic projections by stating that sales in the Asia Pacific region are bad and getting worse, slipping 45 per cent in the third quarter. He said: "growth there isn’t where we want it to be."

A second problem stems from manufacturing problems, as the company hasn’t been able to produce enough of the $100 (or £79 for us currency-affected Brits) Flex 2 bands to meet demand. Park said that this will cut into sales by $50 million in the fourth quarter. 

Park also argued that the company didn’t manage its new product transitions as well as in previous years. The Flex 2 and the Charge 2 were introduced unusually early in August and this pulled some of those holiday season purchases into the third quarter, leaving projections for the fourth quarter looking weak. 

Ultimately, Park acknowledged that the company needs to get smarter about new product introductions and – by his own admission – take a leaf out of Apple’s September launch events. "That’s what we’re striving for internally. We can execute better."

Apple also can be blamed somewhat for Fitbit’s poor potential performance as the upgraded Series 2 Apple Watch has a renewed focus on fitness, much closer to Fitbit’s core selling point. The new watch has likely put the products closer together in the eyes of consumers, and with a larger brand familiarity Apple will no doubt succeed. 

Fitbit’s stock plunge occured in after-hours trading on Wednesday night and left the stock price at an all-time low of $8.94. This was down 30 per cent from the regular market price. Also alarmingly were shares which were also down 55 per cent from its $20 IPO price when the company went public last June. 

Park is still optimistic for the future of Fitbit and, save for those three problematic issues, and said that underlying consumer demand for the company’s products is growing 15 to 20 per cent as well as creating a loyal base of repeat consumers. 40 per cent of new products activated in the third quarter were from upgrading existing customers.

"The overall category still has a lot of demand and growth. Overall, our products are being well receieved. Our business is in no danger of going away."

Hopefully Park’s confidence and enthusiasm will last through the fourth quarter because, for Fitbit, a long Winter is coming. 

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