Fitbit is pinning its turnaround hopes on its smartwatch for the masses


Fitbit

  • Fitbit‘s new Versa smartwatch saw strong initial sales and may be a catalyst for share price growth according to DA Davidson. 
  • The first-quarter marked Fitbit’s sixth straight quarterly loss. 
  • Watch Fitbit trade in real-time here. 

Fitbit posted another loss on Wednesday. Still, the quarter showed some improvement, and some see this as an indicator the company may be on its way to recovery. Shares fell as much as 10% Thursday. 

The company’s new Versa smartwatch in particular looked promising, at least based on initial sales. The company, best known for their activity trackers, has struggled with sales and profitability in the past, posting its sixth straight quarterly loss as a result of high competition in the smartwatch market and a shift in demand away from basic fitness trackers. 

“Early sell through of Fitbit Versa, our first true mass appeal smartwatch, has been the best in our company’s history, positioning us to expand our user base and capture greater share of the fast-growing smartwatch market,” Fitbit co-founder and CEO James Park said in a press release. 

The Versa smartwatch can serve as a catalyst for shares, DA Davidson analyst Tom Forte wrote in a note. He also suggested that if its strong performance continued, he may consider upgrading Fitbit to “buy” from his current “neutral” rating. 

Fitbit is also implementing a new strategy to increase revenue by expanding its offerings to data services, shifting dependency away from weak wearable sales. The company announced Monday that it would partner with Google to explore patterns in health data with greater accuracy. While Forte ultimately approves of the strategy, he estimates the business model transition will likely take years rather than quarters and that sales will continue to contract during this period. 

The company guided second-quarter revenue in the range of $275 million-$295 million, which reflects reduced demand for trackers offset by the more popular Fitbit Versa sales. Management expects smartwatches to make up a larger percentage of revenue in the future, but still expects a 19% year-over-year decline. Fitbit made no changes to their previous full-year 2018 revenue guidance of  approximately $1.5 billion. 

Shares are down almost 14% this year. 

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