After posting two strong quarters earlier this year, Fitbit disappointed investors with weaker-than-expected third-quarter results and a revised-down guidance for the fourth quarter. The shares of the fitness tracking company were trading down about 30.0 percent the day after it cut sales forecasts on Nov. 2.
Fitbit officials cited challenges in the Asia-Pacific region, some softening of demand and production issues with the company's new Flex 2 wristband for the weak outlook. Fitbit's revenues in the fourth quarter are now expected to range between $725 million and $750 million, representing year-over-year growth of 2.0 to 5.0 percent, versus Wall Street's consensus estimate of $981.3 million. The company also expects that a lower net profit than estimated by analysts.
In the third quarter, Fitbit sold 5.3 million of its fitness-tracking devices, up from 4.8 million units a year ago. The company's revenues grew by 23.1 percent to $503.8 million. The Asia-Pacific region had the worst performance, with sales falling by 45.1 percent to $35.7 million, suggesting pressure from cheaper wearables made by competitors such as Xiaomi, but India was an exception with growth of 281 percent.
In the Europe, Middle East and Africa region, sales rocketed by 64.4 percent to $80.9 million, and the management still sees a big opportunity in this region, where it has sold less than 15 percent of its devices to date. They grew by 33.4 percent to $361.2 million in the U.S., and in the rest of the Americas, they went up by 7.3 percent to $25.9 million.
The gross margin remained flat at 48 percent, despite production challenges with Flex 2 that resulted in higher-than-expected waste and increased strap costs, which the company said will continue to influence the fourth quarter. Fitbit also recorded a ramp-up in operating expenses this year to support the launch of new products, with R&D costs nearly doubling.
Net income fell by 43 percent to $26.1 million in the quarter. Excluding extraordinary items, Fitbit said it would have posted net income of $45.7 million, in line with Wall Street's expectations.
Revenues for the full financial year are seen rising by between 25 and 26 percent from 2015, hitting a range of $2,320 million to $2,345 million.