Smartwatch, healthcare shift continues to pay off for Fitbit

In its Q3 2018 earnings call, the company said that diversifying its business model has help stem losses from the declining fitness tracker market.
By Dave Muoio
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Fitbit’s push into the smartwatch and health space appears to have been a wise one, as the company announced during its earnings call that revenue has matched and in some cases surpassed expectations in the third quarter of 2018.

The wearable maker reported 3.5 million devices sold and $394 million in revenue during the quarter, sales that the company noted came not only from fitness trackers but increasingly from smartwatches and other services as well. Paired with lower operating expenses, Fitbit was able to see a GAAP net loss of $2 million ($114 million in Q3 2017) and a non-GAAP net income of $10 million ($2.8 million loss in Q3 2017).

“I’m really proud of our performance this quarter," Fitbit CEO James Park said to investors. "We demonstrated that we can gain share in the smartwatch category, deepen our reach in healthcare, and successfully manage our operating expenses, which resulted in a return to profitability. These are important milestones as we continue to transform our business.”

With the fitness tracker market not what it once was, Fitbit has been operating at a loss for some time amidst a long-term pivot into smartwatches and other services. With these most recent reports, Park has presented his investors with a company that seems to be back on track — thanks in no small part to its swelling smartwatch business. 

In March the company unvieled its newest smartwatch the Fitbit Versa. By Q2 the company already started seeing results, reporting that the watch had outsold all Samsung, Garmin and Fossil's smartwatches in North America combined. 

“Fourteen months ago, we had zero share of the smartwatch category, and today we're the number two player in the US,” he said. “Smartwatches represented 49 percent of revenue in the quarter and demand for Versa remains solid, outselling each of the competitive offerings from Samsung, Garmin and Fossil in the US. Despite smartwatches being a more competitive segment of the wearable market, we have demonstrated that we can quickly and effectively gain market share. This underscores the power of our brand and our ability to deliver devices consumers love.”

Along with noting the early success of the Fitbit Charge 3 tracker, Park also gave lip service to the company’s recent efforts in the healthcare space as well. In particular, he noted ongoing efforts toward “clinical validation and regulatory approval of its software for use in detecting health conditions such as sleep apnea and atrial fibrillation,” as well as the recent launch of Fitbit Care service for chronic disease management and prevention.

“While Fitbit health solutions is less than 10 percent of revenue today, it continues to gain traction, up 26 percent year-over-year,” Park said. “Most importantly, in Q3, we had a significant customer win and an endorsement of our strategy to move from a device-centric approach to a solutions-oriented approach. Humana chose to make Fitbit Care its preferred coaching platform for the employer group segment. More than 5 million Humana members will have the potential to access Fitbit health and wellness solutions as part of this partnership.”

With the meat of the holiday season still ahead, Fitbit CFO Ron Kisling reaffirmed the company’s $1.5 billion full year revenue guidance and the expectation of more than 560 million in Q4 revenues.