The company increased its overall year-over-year revenue by 5% in Q2.

Fitbit's Q2 earnings call reveals disappointing Versa Lite sales, healthcare division growth

By Laura Lovett
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Fitbit’s latest earnings call was a mixed bag for the wearable giant. The company’s revenue and device sales were up; however, the average price of the devices was down. This has led to the company to lower its revenue guidance by $95 million. 

It appears to be continuing to focus in on its health division, which is seeing an uptick in year-over-year revenue, and is on track to meet its $100 million yearly revenue goal. 

TOPLINE

Fitbit increased its overall revenue by 5% year-over-year to $313.6 million (up from $299.3 million in Q2 2018). Moreover, its device sales increased by 31%, with new products introduced in the last year accounting for 68% of the Q2 revenue. 

However, the average selling price saw a dip of 19% year-over-year. The company cites the introduction of more affordable devices as the reason for the decrease — in fact, trackers grew by 51% year-over-year.

The company also saw disappointing sales on the Versa Lite, which it released in Q1. CFO Ronald Kisling said these sales were $150 million below the initial expectation. 

“We subsequently reduced our Versa Lite sales expectations for the remainder of the year and are lowering our full-year 2019 revenue gross margin guidance," James Park, CEO of Fitbit, said during the earnings call. "We attribute the Versa weakness to our pricing go-to-market strategy."

Fitibit is seeing growth in its Fitbit Health Solutions (FHS). These increased 16% to $24 million, bringing the company’s total revenue in 2019 to $54 million. Park cites partnerships with payers as part of the success.  

“So one of the factors in our growth and the increased performance of FHS is our Fitbit Care business and the pipeline, and Fitbit Care again is our health coaching offering that allows health plans and employees and their employers and members to manage chronic disease conditions like diabetes,” Park said. “So that pipeline is continuing to grow, and we've already started the rollout of bundled offerings, where our devices are actually coupled with Fitbit Care and its associated digital interventions along with a coach.”

LOOKING BACK

Last year Fitbit made a comeback, reporting its first year-over-year increase in sold devices since 2016. In the past, Fitbit struggled in the smartwatch market, lagging behind Apple. When it launched the Fitbit Versa last year, the wearable company began to see things turn around. 

“The success of Versa has improved the company's positioning with retailers, solidified shelf space for the Fitbit brand and has provided a halo effect to our other product offerings,” Park said during last year’s Q2 call. “Retailers have been looking for a counterbalance to Apple, and Versa has delivered it.”

LOOKING FORWARD

Park said the company will continue to grow its healthcare sector. In the future, he said Fit will be looking for healthcare software products as well as continuing its hardware push. He also noted that the company is continuing to work with the FDA on different products in the future. 

“So today, revenue does remain skew toward hardware, but we are looking for ways to accelerate the mix of that revenue toward software and services," he said. "And I mentioned previously that we're already beginning to roll out bundled offerings of devices ... coupled with Fitbit Care and a Health Coach. And the other area of opportunity there as we launch our consumer premium offering [is] an opportunity to sell that into our enterprise customers as well as a lower price tier for digital interventions.”

ON THE RECORD 

“In Q2, we made progress transforming our business and generated revenue of $314 million, up 5%,” Park said. “However, our sales mix was different than we anticipated. Versa Lite sales did not meet our expectations, leading to a contraction in quarterly smartwatch revenue growth.”