Fitbit spotlights Q4 device shipments, increasing focus on health services in earnings call

The company anticipates some earnings losses and a gross margin contraction in the earlier part of 2019, but hopes its health business will exceed $100 million before the end of the year.
By Dave Muoio
05:04 pm
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The fourth quarter of 2018 was a good one for Fitbit, with CEO James Park sharing news last week of the the device maker’s first year-over-year increase in sold devices since 2016. The company’s latest investor call touched upon many familiar themes, such as the shift from fitness trackers to smartwatches, but also suggests that Fitbit is viewing its health-focused services as an increasingly important source for long-term revenue.

And while Fitbit is anticipating that its 2019 will have something of a slow start, its executives are optimistic for what the year as a whole will bring to the device maker’s portfolio. In particular, Park said that the company is expecting revenue growth for Fitbit Health Solutions to reach $100 million in 2019, thanks in part to its new Inspire devices, the launch of Fitbit Care and the ongoing development of health-focused software offerings.

Topline

Fitbit reported a revenue of $571.2 million in the fourth quarter, driven by a three percent year-over-year increase to 5.6 million shipments of the company’s wearables. Additionally, a shift from trackers to smartwatches saw the company’s GAAP gross margin drop to 38 percent, from last year’s 43.6 percent. GAAP operating expenses comprised 36 percent of the Q4 revenue.

Looking at 2018 as a whole, the company’s active users grew 9 percent to 27.6 million. Total device sales were down 9 percent to 13.9 million, although a 4 percent increase in average selling price offset some of those revenue losses. Smartwatches comprised 44 percent of the company’s revenue for the year, up from 8 percent in 2017, while Fitbit Health Solutions increased its business by 8 percent.

On the record

“I'm proud of our performance this year,” Park said. “Our results demonstrate that our strategy is the right one, placing us on a path back to growth and profitability. Importantly, we have confidence in our guidance, anticipate growth in both device shipments and revenue in 2019 [for] the first time in two years, along with adjusted EBITDA break even at the top end of our guidance.”

Looking back

Fitbit’s business has taken some hits over the years, but 2018 proved to be a pivot for the company best known for its wearable fitness trackers. Case in point — its decision to pursue the smartwatch market has earned it the number two spot in the space behind Apple, while the launch of Fitbit Care has further shored its healthcare-focused programs for payers and employers. Park also noted that the company was pleased with the recent launches of the Charge 3, kid-focused Fitbit Ace and the female health and sleep health tracking features for its devices.

Looking ahead

CFO Ron Kisling said that the company is expecting some earnings losses and a gross margin contraction in the earlier part of 2019, but that these won’t deter from Fitbit’s longer-term goal of expanding the overall customer base. The long-term goal, the executives explained, is to increase revenue from software-driven services, including Fitbit Health Solutions and a unspecified, consumer-focused “premium” software offering coming during the second half of the year.

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