The wearable fitness company Fitbit Inc’s (NYSE:FIT) reported third quarter results well below expectations, increasing concerns for investors that it may be facing difficulties.
Shares in the company plummeted more than 30 percent in extended trading on Wednesday and were set to hit record-low levels on Thursday.
“We are starting to see some headwinds in our business,” said James Park, chief executive and co-founder of Fitbit.
Whilst expected average estimate for revenue stood at $985.1 million, the October – December forecast revenue is now well below at $725 million to $750 million.
“I am pleased to see positive reception for our new products launched in the third quarter. We are attracting new customers while our existing ones are upgrading their devices, underscoring the strength of the Fitbit brand and growing relevancy of wearables as part of consumers’ everyday lives,” said James Park. “We continue to grow and are profitable, however not at the pace previously expected.”
Fitbit’s top position in the fitness and health device sector has come under threat from rivals such as Apple Inc (NASDAQ:AAPL), Samsung Electronics (KRX:005930), Xiaomi and Garmin Ltd (NASDAQ:GRMN), whose devices have features that rival those of Fitbit products.
Fitbit also faces manufacturing problems in the production of the new Flex 2 device, adding to the company’s weaker than expected fourth-quarter forecast. As a result, Fitbit will not be able to meet all of the demand of the holiday fourth quarter. It estimated about $50 million in revenue shortfall due to a smaller supply of Flex 2’s.
“We are taking a really cautious view of the holidays,” said Fitbit’s Chief Financial Officer Bill Zerella. He noted that the Flex 2 is “so small, there are more challenges ramping it up to high volumes which is impacting gross margins. It is the smallest fitness tracker in the world. It is waterproof, we are doing 100% automation. You can’t build it by hand. It’s a pretty big advance in technology.”
“Fitbit’s destiny isn’t completely within their control. Unless companies find a way to get a mass market of consumers to put … devices on their wrist, there’s a limited upside there,” said Forrester analyst, Julie Ask.