Fitbit stock falls after Versa Lite disappointment prompts lowered outlook

Fitbit stock falls after Versa Lite disappointment prompts lowered outlook

CEO says company misjudged pricing, go-to-market strategy

Fitbit Inc. shares dropped 13% in after-hours trading Wednesday after the company reported better-than-expected second-quarter results on Wednesday but delivered a downbeat forecast for the current period due to the weak performance of its lower-priced Versa Lite smartwatch.

The company recorded a net loss of $68.5 million, or 27 cents a share, compared with a loss of $118 million, or 49 cents a share, a year earlier. Fitbit FIT, -3.00% posted an adjusted loss per share of 14 cents, compared with 22 cents a year earlier. Analysts surveyed by FactSet had been modeling an adjusted loss per share of 18 cents.

Fitbit’s revenue rose to $314 million from $299 million a year prior and came in slightly ahead of the FactSet consensus, which called for $312 million. Chief Executive James Park told MarketWatch that the company’s “product-sales mix was different than we anticipated” because the Versa Lite device, which was launched earlier in the year, “didn’t meet our high expectations.”

The company delivered a disappointing outlook for the third quarter while lowering its full-year outlook to adjust for its new expectations around the Versa Lite. Park said that the company’s Versa Lite weakness reflected missteps in pricing and go-to-market strategy.

“What we ultimately found was that consumers were willing to pay more for smartwatches with additional features or they were looking for discounting,” he said. Fitbit plans to adjust its strategy going forward and also will be looking to “accelerate its hardware development cycle annual cadence” to roll out refreshed products on a more predictable timeline.

Park added that sales of the traditional Versa smartwatch were strong in the latest quarter, as was revenue for the tracker business.

For the third quarter, Fitbit expects an increase in devices sold as well as a drop in average selling prices. The company is calling for $335 million to $355 million in quarterly revenue, compared with the $399 million that analysts were modeling. The company also projects an adjusted loss per share of 9 cents to 11 cents. The FactSet consensus had been calling for 2 cents in adjusted EPS.

Fitbit now expects full-year revenue of $1.43 billion to $1.48, whereas its prior outlook called for $1.52 billion to $1.58 billion in revenue. Analysts were calling for $1.56 billion.

Revenue for Fitbit’s smartwatch segment in the second quarter dropped 27% from a year prior and represented 38% of the company’s overall revenue. Smartwatch devices sold dropped 7% in the quarter, but the company saw a better quarter for its tracker unit, which posted a 51% increase in revenue to account for 59% of the overall business. Tracker devices sold climbed 56%.

Fitbit sold 3.5 million devices during the quarter, up 31% from the year-ago quarter, while the average selling price of items sold fell by 19% to $86, reflecting Fitbit’s efforts to introduce cheaper devices.

Chief Financial Officer Ron Kisling said that the company was continuing its “commitment to greater expense discipline,” as it reduced its operating-expenditure forecast for the full year.

Shares have dropped 16% so far this year, while the S&P 500 SPX, -1.09%  has risen 20%.

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