Consumer Electronics
Fitbit CEO Should Follow CFO Out the Door
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Fitbit Inc. (NYSE: FIT) had a bit of good news recently as sales of its Versa product rose. However, the news, which helped the share price, was not enough to counterbalance a horrible financial performance and shares that have plummeted 55% in the past two years. Chief Financial Officer William Zerella has jumped ship for another job. Shareholders would be fortunate if Chief Executive Officer James Park followed him.
Fitbit’s shares sold off as much as 3% after the news was released to $6. The sell-off is another reminder of how poorly the company is run. And shareholders also remember that Fitbit’s most recent results cannot be blotted out by improved Versa sales.
In the most recently reported quarter, Fitbit revenue was $248 million, down from $299 million in the same quarter a year ago. The company lost $81 million for the period, compared to a loss of $60 million in the same quarter of 2017. More worrisome, device sales for the quarter totaled 2.2 million, compared to 3.0 million in the year-earlier period.
Guidance for the current quarter was gruesome:
We expect results to be impacted by the reduced demand by the channel for trackers, partially offset by an increase in smartwatch revenue, driven primarily by Versa sales. We expect smartwatches to grow as a percentage of revenue, but our overall mix to continue to be skewed towards trackers. We expect revenue to decline approximately 19% year-over-year and to be in a range of $275 million to $295 million.
Non-GAAP basic net loss per share in the range of ($0.27) to ($0.23).
Capital expenditures as a percentage of revenue of approximately 5%.
With lower receivables entering the second quarter of 2018, we expect free cash flow to decline from the first quarter of 2018 to approximately ($85) million in the second quarter of 2018.
Effective non-GAAP tax rate of approximately 25%.
Stock-based compensation expense of approximately $26 million and basic share count of approximately 242 million.
Park was part of our list of 20 worst CEOs in America in 2017. The citation, on December 26:
According to many investors, some companies should never become public. These investors generally refer to corporations that do not have business models that can sustain support from shareholders. Fitbit (NYSE: FIT) fits that description.
CEO James Park co-founded the company in 2007 after realizing the potential of using sensors in wearable activity trackers.
Fitbit operates in a sector that includes China consumer electronics giant Xiaomi and Apple (NASDAQ: AAPL). Among the mistakes Park has made is to focus on the crowded health-care and fitness segments of the wearables market, which Xiaomi and Apple have taken positions in.
Fitbit’s third-quarter revenue slumped 21.8% to $393 million from $503 million in the same quarter last year. Fitbit also posted a loss of $113 million in the quarter after reporting a profit of $26.1 million in last year’s quarter. Some analysts have downgraded the shares.
Park took Fitbit public and then pushed it in the wrong direction.
Beyond new financials, the balance of the evaluation holds true.
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