Fitbit (NYSE:FIT) lost nearly $1.00 a share after reporting fourth-quarter results. Worries over Apple (NASDAQ:AAPL) taking its market share are coming true. Thought Fitbit’s smartwatch revenue grew, the total company performance disappointed the market.
Fitbit reported revenue growing 44% in the smartwatch division in 2018. But active users grew just 9% to 27.6 million. In the fourth quarter, Fitbit generated $571 million in revenue and non-GAAP income of $0.14. The ASP (average selling price) of $100, down 2% Y/Y, is troubling. Fitbit faces competition that is putting pressure on its stock price. Gross margin also fell 5.5% to 38.7%.
Fitbit blamed end of life promotions of legacy tracker offerings and higher hosting costs hurting gross margin. Still, better product quality lowered warranty costs. Costs fell 24% in Q4 to $185 million.
Limited Growth Potential
Markets sold the stock following Q4 results because cost cuts of 12% (in operating expenses) still led to a 2.5% drop in non-GAAP gross margin. The company may still have hope: drawing down inventory of older model smartwatches and wearables will increase ASP. If consumers decide the newer Fitbit devices offer more value than Apple Watch or Samsung wearables, profits may improve.
