The stock of Fitbit (FIT 5.68) has looked anything but fit, having plummeted 67% over the last 52 weeks on disappointing operating results that have been linked to weakening demand for its products and some company-specific execution issues. The demand issues were evident again in the company's first quarter report, yet shares of FIT have responded positively nonetheless as those results weren't as bad as feared.
The numbers effectively speak for themselves on the demand side of the equation.
First quarter revenues declined 40.9% year-over-year to $298.9 million, led by a 52% contraction in U.S. revenue of $170 million. During the quarter 3.0 million Fitbit devices were sold versus 4.8 million last year. The average selling price declined 4% to $96.45 per device.
Fitbit's adjusted gross margin rate declined 660 basis points to 40.0%, it posted an adjusted EBITDA loss of $52.3 million versus an adjusted EBITDA profit of $45.1 million last year, and it reported a non-GAAP net loss of $0.15 per share against a non-GAAP profit of $0.10 per share in the same period a year ago.
Those ugly numbers aside, the top and bottom-line results still exceeded analysts' low expectations. That "positive" surprise is accounting for something, as is the company's contention that underlying consumer demand has been better than the reported results in North America, lending it confidence that it will enter the second half of 2017 with a relatively clean channel.
That expectation is creating a vibe of stability that is sparking a nascent belief that perhaps the worst is behind Fitbit.
Future results will tell, but with roughly a quarter of the stock's float sold short and Fitbit providing revenue guidance in-line with analysts' average expectations for its second quarter and full-year, it stands to reason that some short sellers are feeling compelled to cover those positions at this point.
That short covering is most likely acting as an influential driver of the stock, which is up 8% in pre-market action.
The company's guidance itself, though, underscores the challenges it continues to face in a competitive market for consumer wearables.
To that end, it is forecasting second quarter revenues in the range of $330 million to $350 million, the midpoint of which is 42% below the same period a year ago, and a non-GAAP net loss in the range of $0.14 to $0.17 per share that is worse than what analysts are currently expecting.
For fiscal 2017, revenues are anticipated to be between $1.5 billion and $1.7 billion, the midpoint of which is 26% below FY16 revenues, and the non-GAAP net loss is forecast to be between $0.22 and $0.44 per share, which brackets the average expectation held by analysts.