Fueled by Smartwatch Sales, Fitbit Says It’s on the Comeback Trail

Fitbit had a better quarter than Wall Street expected, but still saw revenue drop 15% from last year. Smartwatch sales boomed, but were held back by production limits as the company ran out of its new hit Versa watch. And sales of cheaper fitness trackers were still falling sharply.

Overall revenue for the second quarter totaled $299 million, better than the $285 million analysts forecast, and the company lost an adjusted 22 cents per share versus the 24 cent loss analysts expected. Fitbit sold 2.7 million devices, including both smartwatches and trackers, again beating the 2.5 million analyst forecast, but still 21% less than a year earlier.

The company is still making its way through the transition that has seen sales of health trackers plummet and sales of smartwatches take off. Fitbit’s (FIT) revenue from smartwatches—a category it wasn’t even in a year ago—reached $165 million, up from $74 million in the first quarter. But that left all other revenue, almost entirely from the sale of trackers, at just $135 million compared to about $353 million in the second quarter of 2017.

Fitbit CEO James Park forecast total revenue for the year would be $1.5 billion, down from $1.6 billion last year and $2.2 billion in 2016. But, he said, the drop in tracker sales appears to have stabilized and smartwatch sales should gain strength as the company quickly adds more production capacity.

“We believe strongly that for us, the year over year decline in trackers has hit its trough in this quarter,” Park told Fortune. “We’re actually expecting to return to growth and profitability in the second half of the year, which I think is a major accomplishment.”

Still, the popularity of the $200 Versa, which went on sale in April and quickly reached 1 million units sold, came at time of lull for the overall smartwatch market. Apple (AAPL) had introduced its new Apple watch 3 model way back in September and isn’t expected to introduce an upgrade until this fall. Meanwhile, watches based on Google’s (GOOGL) Wear OS software have seen neglect from hardware makers. That could end later this year, now that Qualcomm (QCOM) has released an improved chip for Wear OS watches and amid rumors that Google may introduce a smartwatch of its own.

With the field somewhat open, Fitbit said the Versa outsold smartwatches from Samsung, Garmin (GRMN), and Fossil (FOSL) combined in North America in the second quarter. Not mentioned was Apple, which just said its watch sales gained more than 40% in the same period, with analysts estimating unit sales of about 3.5 million.

Fitbit, too, is expected to unveil to some new products before the holiday shopping season, as the company looks to revive its fitness tracker sales as well as benefit from the increasing demand for smartwatches.

“We’re continuing to invest in innovation in both smartwatches and trackers and I’m pretty excited about what’s in the pipeline for both looking ahead,” Park said, declining to get more specific.

Fitbit’s stock price got a mild boost from the second quarter report. The shares, which were up about 5% so far this year, initially rose 8% in afterhours trading, but then fell back to a 2% gain.

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