Fitbit Busts Estimates, Shares Get Busted by Follow-On Offering

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Fitbit Inc. (NYSE: FIT) reported third-quarter results after markets closed Monday afternoon. The wearable fitness tracking device maker reported earnings per share (EPS) of $0.24 on revenues of $409.3 million. In the prior quarter, Fitbit’s first as a publicly traded company, it posted adjusted EPS $0.21 and revenues of $400.4 million, the most in the company’s history. Analysts were expecting third-quarter EPS of $0.10 on revenues of $350.97 million.

Monday’s results easily topped the company’s forecast at the end of the second quarter for $335 million to $365 million and adjusted EPS of $0.07 to $0.10.

For the fourth quarter, Fitbit now estimates adjusted EPS of $0.20 to $0.25 and revenues in a range of $620 million to $650 million.

The company also raised its prior forecast for full-year revenues from a range of $1.6 to $1.7 billion to a new range of $1.77 to $1.8 billion and the estimated range for adjusted EPS rose from a prior range of $0.69 to $0.77 to a new range of $0.92 to $0.96. Adjusted gross margins for the the full year were forecast at 48% to 48.5%, up from a forecast of 47% to 48% at the end of the prior quarter.

James Park, the company’s co-founder and CEO, said:

Fitbit’s third quarter results demonstrated the continued rapid growth of the Fitbit platform and our team’s ability to execute on the tremendous opportunity we see globally, as we help people reach their health and fitness goals.

The company said it sold 4.8 million connected health and fitness devices in the third quarter, with two-thirds of revenue coming in the United States where year-over-year revenues grew by 130%. Revenues rose 314% in AsiaPacific, 282% in Europe, Middle East, and Africa, and 286% in other Americas. Gross margin, adjusted for currency effects, was 50.8% in the third quarter.

Effective Wednesday, November 4, approximately 2.3 million shares will shed lockup restrictions imposed at the time of the June 18th initial public offering. The lockup expiration applies to stock held by employees and consultants and is being raised ahead of the original December date to give these stockholders a liquidity opportunity in advance of year-end.

Probably anticipating a warm reception from the investment community, Fitbit also announced that it will have a secondary offering of 21 million shares, of which the company will sell 7 million and certain stockholders will sell the rest.

The proceeds of the company’s portion of the proposed offering will be used to provide additional working capital for Fitbit and for other general corporate purposes, including research and development and sales and marketing activities, general and administrative matters, and capital expenditures. As part of the underwriting procedures, all selling stockholders, as well as all executive officers and directors, will agree to enter into lock-up agreements for a period of 90 days following the proposed offering.

Fitbit was also hit with an antitrust lawsuit Friday by rival wearables maker Jawbone.

The lockup expiration and secondary offering are killing the shares in Monday’s after-hours session. The stock traded down about 6% at $38.24 after closing at $40.80. The 52-week range is $29.50 to $51.90 and the consensus price target is $52.13.

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