Sales to healthcare plans helped wearable maker Fitbit surprise Wall Street in the latest quarter and lift its shares from the basement.
Revenue from healthcare customers, which the company has yet to disclose by dollar amount, grew 26% in the third quarter from the same period a year ago. The business includes sales of Fitbit’s wearable devices, as well as software and services, to health plan providers and directly to some employers.
But overall revenue rose a mere 0.3%, as the company is still working to get back on track after sales of its main product, simple fitness trackers, stalled out over the past few years.
Nevertheless, investors were pleased that the company’s sales were at least stable after declining in the first half of the year. Fitbit’s (FIT) shares, which hit an all-time low of $4.23 earlier this week, gained 7% in Wednesday’s regular trading and another 10% in extended trading after the earnings report, to $5.18.
Fitbit CEO James Park tells Fortune that the company will offer more details about its healthcare segment in coming quarters. “We’re calling it out now because it’s demonstrating a lot of traction and growth,” he said. Many plans use the fitness trackers to help users who have chronic diseases stay on top of their health and medication, he explained. “We’re really capitalizing on that growing need.”
About 1,600 health plans and other organizations are buying Fitbit products already. Last month, Humana (HUM) expanded a partnership with Fitbit to include Fitbit Care, the company’s new virtual health coaching service built off of technology it acquired by buying Twine Health in February. Coaches can offer users health advice via an app, on the phone, and in person.
Still sales of simple fitness trackers, Fitbit’s original business, peaked several years ago. The drop has pummeled the company’s revenue.
Although the extra growth from healthcare helped Fitbit’s overall third quarter sales, they remained essentially flat at $394 million. But that was enough to beat the $381 million that analysts had expected as did adjusted profits of 4 cents per share, which were modestly higher than the 1 cent loss that had been expected.
In terms of profit on the basis of generally accepted accounting principles, Fitbit lost 1 cent per share, or $2.1 million.
Fitbit’s healthcare effort comes as some studies have recognized that wearables and the “gamification” of wellness can prompt people to exercise more and live healthier lives. That in turn has prompted some health plans and large employers to partner with the company and buy fitness trackers for workers along with software and services to track their progress. Apple (AAPL) is also aiming at that segment with its Apple Watch.
Park’s decision to get Fitbit into the smartwatch market last year also paid big dividends. The company’s strong-selling Versa smartwatch, along with its less popular Ionic watch, grabbed $193 million of revenue, almost half of the total for the quarter and up from $165 million in the second quarter. Fitbit smartwatches outsold all other vendors except Apple in the U.S. market in the quarter, Park said.
Apple this year added several new health features, including an EKG reader and a fall detection system, to its smartwatch. Park wouldn’t say exactly how Fitbit would match Apple’s moves, but hinted the company had some new healthcare features of its own, coming soon.
“We are very focused on adding more advanced health capability to our products over time,” he said. “We are in clinical studies and validation for a few deeper health conditions such as sleep apnea and (Atrial fibrillation) and we’re working with the proper regulatory agencies to get that into the hands of consumers. as soon as we can.”