Fitbit's fiscal fitness

By Heather Clancy and Adam Lashinsky
February 23, 2016

At first blush it’s tough to figure out why investors would be so angry with Fitbit. It’s the category leader in wearable fitness trackers against well-funded competitors from never-say-die startup Jawbone to the promises-to-get-better Apple Watch. Fitbit reported quarterly revenue Monday that nearly doubled over the year-earlier period, and profits were up 64% to $64 million.

Yet shares of San Francisco-based Fitbit, already down significantly from its 2015 initial public offering, plunged further, sinking 15% to about $14 in after-hours trading.

The culprit is expectations. Fitbit said its earnings in the first quarter would be negligible, compared with the 23 cents per share investors had expected. It also said revenue would be roughly $50 million below those same expectations.

It all feels a little nuts. Fitbit is the Cinderella of inexpensive consumer devices. Compared with crosstown rival Jawbone, it raised less money, built a better product, managed its resources better so that it could advertise heavily, and went public in a wildly successful IPO. Now the market hates Fitbit, not for failing to do what Fitbit said it would do, but for failing to do what investors thought Fitbit would do.

Fitbit CEO James Park claims his company isn’t responsible for earnings projections it never issued, and he has a point. And yet, this is where Wall Street’s bizarre behavior begins to make some sense.

It may be that Fitbit doesn’t deserve to be punished after turning in an impressive financial performance. At the same time, this is a company that’s still worth $3 billion, despite being in a dogfight for a potentially faddish market. Maybe that’s low, but it’s just as likely that expectations were wildly unrealistic when Fitbit’s shares traded for $52. It was basically the same company then.

What has changed are the expectations.

Adam Lashinsky
@adamlashinsky
adam_lashinsky@fortune.com

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BITS AND BYTES

DOJ may order Apple to unlock more iPhones. The federal government is examining requests involving at least a dozen criminal investigations, reports The Wall Street Journal, lending credence to Apple’s claim the case will create a dangerous ripple effect in U.S. privacy policy. Meanwhile, two more influential tech executives have weighed in on the case: Bill Gates sides with the FBI, while Mark Zuckerberg defends Apple’s stance. (Wall Street Journal, Re/code, New York Times)

J.P. Morgan Chase tests blockchain for currency trading. The giant financial services firm is using the encryption technology—introduced to the world courtesy of the bitcoin digital currency—to facilitate U.S. dollar transfers between Tokyo and New York, reports The Wall Street Journal. The pilot program involves about 2,200 clients and is part of the company’s growing investments in emerging digital technologies and app approaches. (Wall Street Journal)

Western Digital sticks with $15.8 billion plan to buy SanDisk. The two memory chip companies are proceeding with a merger first reported last October. One of Western Digital’s largest investors has criticized the deal, saying the price is too high. The transaction will take place without the support of potential Chinese investor Tsinghua Unisplendour Corp. (Bloomberg, Reuters)

Google abandons comparison shopping site. Google Compare, started about one year ago, enabled consumers in the U.S. and U.K. to compare prices for auto insurance, credit cards, and mortgages. The project will be shuttered by the end of March, according to an email sent to partners, so Google can focus “more intently” on its AdWords platform. (New York Times, Wall Street Journal)

Toshiba ditches smart glasses project. The Japanese electronics company has killed its Wearvue wearable device product line, targeted at applications in warehouses and factories, in order to focus its resources more selectively. The project was announced officially just six weeks ago and was supposed to ship to customers at the end of February. (Wall Street Journal)

Gogo gets reprieve. American Airlines dropped a lawsuit against the in-flight wireless services company after Gogo offered to renegotiate its contract. American, which accounts for about 15% of Gogo’s revenue, had sued for the right to consider a “materially” better offer from satellite Wi-Fi company ViaSat. This isn’t over yet: American may still make a switch. (Fortune)

Uber defends driver screenings in shooting aftermath. The suspect in six deaths on Saturday in Kalamazoo, Mich., didn’t have a criminal record and was highly rated by previous Uber fares. The ride-hailing company has been criticized for skipping federal fingerprint checks. It probes local records instead and acts on passenger feedback to discipline drivers when warranted. There was a red flag earlier that evening, when a passenger complained of Jason Dalton’s behavior, but that complaint wasn’t prioritized, Uber officials acknowledge. (Fortune)

Cisco and Ericsson are building 5G wireless gear. Tests of the next wave in wireless technology, dubbed fifth generation or 5G, are getting underway. Cisco and Ericsson are teaming with Intel to get in on the action. (Fortune, New York Times)

 


THE DOWNLOAD

Reclusive social media star rises again. Pavel Durov won fame as “Russia’s Mark Zuckerberg” before being pushed out of his first company—and his home country. With the news that his new messaging app, Telegram, now has 100 million monthly users, he finds himself back in the spotlight and in the middle of the debate about encryption. Read Fortune‘s new profile of the 31-year-old entrepreneur.



ONE MORE THING

UN: Keep lithium-ion battery cargo off passenger planes. The ban covers bulk shipments of rechargeable batteries, which can present a fire hazard when packed closely together. It takes effect in April until at least 2018. (Wall Street Journal)


This edition was curated by Heather Clancy.

@greentechlady
heather@heatherclancy.com

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