Fitbit May Have Hit Bottom, For Now

Pacific Crest’s Brad Erickson remains Sector Weight-rated on Fitbit Inc (NYSE: FIT) after the wearable device maker reported lower-than-expected fourth quarter results.

• Fitbit reports Q4 Adj. EPS of $(0.56), missing by $0.06
• Sales came in at $574 million, missing by $2 million; U.S. Sales Down 28.3%
• Forecasting sales of $270-$290 million in Q1, $1.5-$1.7 billion for FY17
• Sold 6.5 million devices in Q4, 22.3 million in FY16

Erickson said the cost cuts should provide some downside protection to the stock price if sales do not decline further. Fitbit has already reduced head count by 6 percent and is partnering with third parties for making accessories to reduce costs.

“While the company must bring compelling new products if it is to stabilize its declines, FIT is cutting costs and preserving cash, which could provide a floor given the company has ~$3 per share in net cash and is trading at 0.4x EV to a dreary 2017 revenue outlook,” Erickson wrote in a note.

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Fitbit plans new form factors, smartwatches, and greater enterprise healthcare integration to help reinvigorate sales.

Erickson says the company could return to growth if it brings new sensors to tap adjacent markets, namely health care. Further, the company’s potential entry in to smartwatches could broaden its demographic appeal.

“While the tracker market is arguably saturated, if not in decline, we think Fitbit could return to growth if it finds a foothold in one or both of these opportunities,” Erickson continued.

Since the shares reflect the company’s challenges in 2017, the analyst said it could be difficult to get more aggressive to the downside before seeing new product launches slated for this year.

At last check, shares of Fitbit rose 1.79 percent to $5.99.