Fitbit increased its deficit for the third quarter of the year, posting a net loss of $51.9 million compared with a net loss of $2.1 million a year ago, which was in line with analysts' expectations. The additional red ink flowed shortly after the announcement that Google has agreed to acquire Fitbit for $2.1 billion, in a bid to gain a foothold in the fast-growing smartwatch and wearables business.
The interesting announcement led to a doubling in Fitbit's depressed share price, without quite matching the offer price of $7.35. The transaction – which should be completed in 2020 – will have to be approved by shareholders and regulators. In a blogpost, Rick Osterloh, Google's senior vice president in charge of devices & services, said Fitbit had been a pioneer but Google could “help spur innovation in wearables and build products to benefit even more people around the world.”
Fitbit's revenues declined by 11.8 percent to $347.2 million in the latest quarter, weighed down by a 12 percent drop in pricing and flat growth in the number of devices sold. The company sold 3.5 million units at an average price of $96.
The management tried to look on the bright side, saying that it is excited about the Google deal and that Fitbit continued to make good progress shifting its business toward the faster-growing smartwatch category with the introduction of Versa 2, expanding Fitbit Health Solutions, and deepening its relationship with consumers with the launch of Premium.
One of the highlights of the quarter was in fact the launch of Fitbit Premium, a paid membership in the Fitbit app that uses consumers' unique data to deliver personalized, actionable guidance. The offering can be purchased separately at $9.99 per month, at $79.99 per year, or bundled together with the purchase of a device. Meanwhile, Fitbit Health Solutions has reached revenues of $73 million since January, up by 31 percent from the same period a year ago.
During the quarter, smartwatch revenues represented 58 percent of Fitbit's total sales, compared with 49 percent for the third quarter of 2018. On the other hand, with no new trackers launched in the quarter and facing a difficult comparison with the launch of Charge 3 last year, tracker revenues declined and represented 39 percent of total revenues. Revenues from accessories and other products accounted for 3 percent of sales.
Sales outside the U.S. represented 40 percent of revenues and were off by 14 percent to $141 million. In EMEA, they dropped by 20 percent to $83 million. U.S. sales went down by 10 percent to $207 million, and they tumbled by 33 percent in the rest of the Americas. On the other hand, Fitbit's business in Asia-Pacific remained buoyant, growing by 19 percent to $41 million.
Overall, Fitbit's gross margin dropped by 7.9 percentage points to 31.1 percent, negatively impacted by lower average selling prices driven by increased promotions, the mix shift to smartwatches, higher hosting and warranty costs, and the de-leveraging of fixed costs.
