Fitbit CEO Focuses on the Bigger Picture For 2016

February 23, 2016, 12:21 AM UTC
Courtesy of Fitbit

For the third consecutive quarter, Fitbit beat Wall Street’s expectations and its own guidance. And for the third straight time, Fitbit’s shares took a beating in after-hours trading.

Investors sent the fitness tracker maker’s stock (FIT) tumbling over 15% after the company gave a weak financial outlook.

On the surface, things didn’t seem so bad for Fitbit, which sold 8.2 million new trackers in the quarter ending Dec. 31. Sales rose 92% to $711.6 million compared to the same period a year earlier. Meanwhile, profits rose 64% to $64.2 million.

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Yet, investors weren’t impressed. They focused on the outlook, which suggested that demand for the company’s products would be weaker than expected over the first three months of the year.

Fitbit said it would break even or earn 2 cents per share in the first quarter instead of 23 cents. Revenue would be $420 million to $440 million versus an expected $483.8 million according to The Street.

In an interview with Fortune on Monday, Fitbit CEO James Park shrugged off Wall Street’s pessimism. He wanted to focus on full-year 2016, and not merely the first quarter.

“We obviously hadn’t given any guidance to analysts,” Park said, laying blame on Wall Street for over estimating his company’s first quarter performance. “They were creating the numbers with their own models, so there’s going to be some disconnect for Q1.

He continued: “For us, a lot of it is we’re not looking at it quarter to quarter. The key thing for us is the full year guidance and that reflects the success we feel we’re going to have with the Blaze and Alta.”

Fitbit predicted $2.4 billion to $2.5 billion in sales this year, or 35% more than in 2015.

For more read Consumer Reports: Fitbit’s Heart Rate Tech is Accurate

Fitbit is banking on big sales of the $200 Blaze smartwatch, which it first showed off in January. But reactions were mixed, with the loudest complaints focused on the device’s lack of applications such as weather, and inability to provide more notifications than the currently supported text, calendar, and phone calls.

Competitors like the Apple Watch (AAPL) can do both. Fitbit’s shortcoming, in comparison, could make it more difficult to attract customers.

With the help of future software upgrades, Park is optimistic the Blaze will evolve from a basic smartwatch with limited notifications to a more comprehensive product—all the while remaining true to the company’s vision of making the device as simple as possible to use. Park declined to provide further details.

Fitbit’s Alta, a slimmer activity tracker for counting steps and tracking sleep that costs $129, will begin shipping in March.

Park said preorders for both the Alta and Blaze have exceeded internal forecasts, with the Blaze currently sitting in the number two slot on Amazon’s best selling smartwatches over $100. The Apple Watch, which starts at $349, is at the top of the list.

Additionally, Park promised that Fitbit would release more new hardware products later this year, though he wouldn’t elaborate.

One data point that stuck out from Fitbit’s earnings announcement was its retention rate of new users. During 2015, Fitbit added 18 million new registered users of its devices. (Fitbit defines a registered device user as someone who’s installed the mobile application and connects one of its fitness trackers or its wireless scale to the service.)

For more about Fitbit watch our video.

At the end of the year, 13 million of those users were still using a Fitbit device. In other words, Fitbit has a 72% retention rate; a number that’s Fitbit said has increased when compared to prior years, though Park didn’t quantify it.

Retention rates for fitness trackers—not just Fitbit’s—has long been an area of concern. A 2014 study found nearly a third of wearable owners quit using the device within six months. Assuming the report was accurate, Fitbit is ahead of the curve, but not by much.

According to Park, one reason for the higher retention rate is due to the headway Fitbit has made on increasing social interaction within the app. Fitbit users had an average of 7.5 friends at the end of 2015 compared with 4.9 friends a year earlier.

Park’s philosophy is that the more Fitbit-wearing friends and family members a Fitbit user has, the more likely the user would continue using the product. Think of it as the digital equivalent of signing up for a gym membership with your best friend, in an effort to hold one another accountable.


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