Fitbit's share price dropped by 17.0 percent after the group announced plans to lay off around 110 employees, or 6 percent of its staff, and cut its guidance for its fourth-quarter results following weak holiday sales. The fitness tracking brand now expects revenues of $572 million to $580 million for the quarter, compared with a previous forecast of $725 million to $750 million, and indicated that this led to a loss instead of a profit on an adjusted basis.
For all of 2016, Fitbit now estimates that it grew by only about 17 percent instead of the previously predicted growth of 25 to 26 percent. And for 2017, Fitbit has issued a preliminary revenue guidance of $1.5 billion to $1.7 billion, indicating a further sales decline of 25 percent for this year, accompanied by a lower gross margin of around 45 percent and by a net loss.
The company admitted that its sales were weak late last year in spite of its release of an updated lineup of products for the holiday season. However, Fitbit pointed out that it continued to grow rapidly in select markets such as the region of Europe, the Middle East and Africa, where revenues grew by 58.0 percent during the fourth quarter, while experiencing softer-than-expected holiday demand in its most mature markets, particularly in connection with the annual Black Friday promotion.
Fitbit's chief executive, James Park, said the 110-odd layoffs decided on by the management was one of a series of clear steps intended to reduce operating costs and address this “temporary slowdown and transition period.” Fitbit is targeting a reduction in operating expenses for this year of about $200 million, down to around $850 million. As part of this program, Fitbit plans to realign spending on sales and marketing and to optimize R&D investments. The cost of these reorganization efforts is expected to be about $4 million, which would be charged to the first quarter of 2017.
Moving forward, the company said the evolving wearables market continues to present growth opportunities that it will capitalize on by investing in its core product offerings, while expanding into the smartwatch category to diversify the sources of its revenues. To this end, the company has recently acquired assets from Pebble, Vector Watch and Coin.
According to independent research, 30 percent of the users of fitness bands are abandoning their devices. They are apparently going for more sophisticated fitness tracking solutions.
