Fitbit Inc., in its first report since going public, reported earnings and sales that blew past Wall Street expectations.
Profits adjusted for expenses tied to the IPO rose 179.7 percent to $51.3 million, or 21 cents a share, from $18.3 million, or 9 cents, and easily ahead of analyst estimates of 8 cents.
Earnings on a GAAP basis reached $17.7 million, or 7 cents a share, against $14.8 million, or the same 7 cents, a year ago.
Revenues in the quarter skyrocketed 252.5 percent to $400.4 million, well ahead of analyst estimates of $319 million.
Fitbit sold 4.5 million of its fitness devices in the second quarter, up from 3.9 million devices in the first quarter. This is a continuation of an upward trend: Last year it sold 10.9 million devices, more than double the 4.5 million devices it sold in 2013.
By region, Q2 revenues from the U.S. grew 253 percent year-over-year while revenue from EMEA grew 301 percent followed by Asia-Pac growth of 292 percent. Americas, excluding the U.S., grew 134 percent year-over-year. Geographically, revenue from the U.S. accounted for 78 percent of its Q2 revenue followed by 10 percent from EMEA, 8 percent from Asia-Pac and 4 percent from the Americas excluding the U.S.
Fitbit said the growth was driven by its newest products, Charge, Charge HR, and Surge which collectively accounted for approximately 78 percent of its revenue. The mix shift towards higher priced products resulted in its average selling price for devices increasing 40 percent year-over-year to $88 from $63 in the corresponding period of the prior year. In Q2, strong contributions also came from Flex, one of its legacy products.
Gross margin were down 430 basis points year-over-year to 47.2 percent. The strength of the U.S. dollar had a $12.5 million negative impact on revenue in the quarter and accounted for approximately one-third of the decline in gross margin with the balance due to product mix.
Gross margins were down 260 percent sequentially. A mix shift to its newest fitness tracker devices for which Fitbit had less cycle time to drive down unit costs, versus legacy products contributed to the decline. During the second quarter additional cost was also incurred to increase its production capacity in order to meet consumer demand for Charge HR.
Operating income on an adjusted basis grew 190.0 percent to $81.1 million form $28 million
Operating expenses were $107.8 million, up 253 percent year-over-year and up 44 percent quarter-over-quarter. The biggest increase was in sales and marketing due to the launch of significant media campaigns in several markets.
On a conference call with analysts, James Park, CEO and co-founder, said the gains were driven by strong marketing and sales team execution in the quarter coupled with seasonal demand from Mother's Day and Father's Day.
Underscoring Fitbit’s growth potential, Park noted that according to IDC, the projected market for wearable will grow by more than six times from 2014 to 2019. IDC projects shipments of $126 million global wearables and for this category to represent a $28 billion worldwide revenue opportunity by 2019.
“Since selling our first connected health and fitness device in September 2009, we have sold over 25 million connected health and fitness devices through the second quarter of 2015,” said Park. “Fitbit continues to have a dominant share of the connected health and fitness device market.”
Park pointed out that beyond developing innovative products and growth in its global footprint, key drivers for growth detailed in its IPO filing included adding software features and services, expanding brand awareness, and further penetrating the corporate wellness market.
New software product features rolled out in the second quarter included an update to the Fitbit Surge, enabling GPS bike tracking; enabling the use of multiple devices with one account; and using multiple devices with one account. It also continued investing in FitStar, its personal training app.
In an effort to increase brand awareness, Fitbit launched a global media campaign with prominent placement on ESPN and The Amazing Race. Said Park, ““Evidenced by a record quarterly revenue, we believe our ad dollars have been well spent. We plan to continue advertising where and when we believe we can generate a solid return on the spending.”
Fitbit also entered into a number of key partnerships with Strava and Kellogg's and extended its partnership with Tory Burch.
Finally, Fitbit entered into Corporate Wellness agreements with Geico, Sutter Health, Transunion, Quicken Loans, and several financial institutions. To date, it has signed over 50 of the Fortune 500 companies to its Corporate Wellness offerings.
Looking ahead, Fitbit is projecting full-year earnings of 69 to 77 cents per share and revenue of $1.6 billion to $1.7 billion. This is solidly ahead of Wall Street’s estimates of 61 cents per share and $1.41 billion. For the third quarter, Fitbit expects earnings of seven to 10 cents per share and revenue of $335 million to $365 million. Consensus estimates were 7 cents per share in earnings on revenue of $263 million.
