Fitbit: Is It Worth Buying?

Fitbit (FIT) announced fourth quarter ended December 31, 2015 total revenue of $711.6 million, up 92 percent year-over-year from $370.2 million during the same period last year. Going forward, Fitbit has provided revenue guidance for first quarter of 2016 and estimates net revenue in $420 million to $440 million range. Further, full-year 2016 consolidated revenue in projected to be in $2.4 billion to $2.5 billion range.

Impressive growth

Fitbit declared fourth quarter of 2015 non-GAAP net income of $87.4 million or $0.35 per diluted share, up 99.5 percent year-over-year from $43.8 million or $0.21 per diluted share in fourth quarter of 2014.
Moving ahead, first quarter of 2016 adjusted EBITDA is estimated to be in $5 million to $16 million range with adjusted diluted net income per share forecasted in $0.00 to $0.02 range.

What’s driving growth?

The global wearable fitness devices manufacturing company reported continued and significant growth in both its top and bottom lines primarily driven by notable customer traction for its innovative set of wearable fitness devices solutions and thus, increased company sales.

The key technology company has already warned investors about significant pressure on its top and bottom lines growths primarily due to a worldwide launch of innovative products that include its smartwatch.

Fitbit’s stock declined sharply or 13% to about $14.32 in recent trading from its opening price of $30.40 during June of previous year. A majority of company sales comprises of innovative products recently introduced by Fitbit which highlights the company’s continued commitment towards introducing superior technological advancements and in line with the rapidly shifting consumer preferences. The technologically-superior smartwatch of Fitbit called Blaze that gives head-on competition to the market leader Apple Watch is expected to begin shipping during March and has already recorded better than estimated order backlog for the quarter.

Therefore, although accelerated launch of new products by Fitbit is bound to put downward pressure on the company’s top line growth still, a strategic competitive pricing of its technologically-advanced products is expected to steal the shares of other market leaders such as, Apple Inc.

Positives to note

According to the International Data Corporation (IDC), the fourth quarter of 2015 consolidated sales of wearable devices grew 126.9% year-over-year from prior year with Fitbit sales growing at -5.73%. The total vendor shipments for the quarter added to 28.4 million units with 78.1 million units shipped during the year. Importantly, Fitbit remained the undisputed global leader of innovative wearable devices, capturing the significant market share of 29.5% for the quarter owing to expansion in corporate wellness segment coupled with several other devices. Fitbit was followed by Apple having 15% share along with Xiaomi, Samsung and Garmin with consecutively declining market shares.

During April, Fitbit targets on launching Spanish, German and French versions of the latest custom-made video workouts new FitStar app which is expected to drive significant customer traction considering its competitively priced products.

The market-leading sales growth figures of Fitbit highlight significant customer traction for the company’s technologically-superior and attractively-priced products, giving a tough competition to its peers such as, Best Buy, Amazon.com and Apple.

Conclusion

Overall, the investors are advised to “Buy” equity in Fitbit Inc. considering the company’s solid financial position with significant total cash of $575.48 million and no debt, encouraging it to make future growth investments while offering attractive shareholder returns. The profit margin of 9.94% seems satisfactory. The PEG ratio of 0.40 indicates weak company growth compared to impressive industry’s growth average of 1.24. The trailing P/E and forward P/E ratios of 20.61 and 8.82 respectively signifies logical company valuation and comparable to the industry’s average P/E of 22.25.
Published on Feb 29, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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