What to Look For in Fitbit Earnings

Wearable fitness tracking device maker Fitbit Inc. (NYSE: FIT) is scheduled to report third-quarter results after markets close Monday. Analysts expect earnings per share (EPS) of $0.10 on revenues of $350.97 million. In Fitbit’s August quarterly report, its first as a publicly traded company, the company posted adjusted EPS of $0.21 and revenues of $400.4 million, the most in the company’s history.

At the end of the second quarter, the company’s revenue forecast called for $335 million to $365 million and adjusted EPS of $0.07 to $0.10. The company also forecast full-year revenues in a range of $1.6 billion to $1.7 billion and adjusted EPS in a range of $0.69 to $0.77. Gross margins for the third quarter and for the full year were forecast at 47% to 48%.

When Fitbit launched its initial public offering in June, the stock priced at $20 a share and opened for trading at $31.34 per share. Shares hit a high of $51.90 in early August.

So why are shares trading lower after a big beat in the second quarter? One word: Apple. Investors wonder whether Fitbit will be swamped by the world’s most profitable company and its Apple Watch. Third-quarter earnings may provide some indication of whether the 800-pound gorilla will squash the upstart.

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Apple Inc. (NASDAQ: AAPL) attributed to the Apple Watch more than 10% of its “other income” growth in the 2015 fiscal year that ended in September. That suggests to Apple watchers that the company sold about $1.7 billion worth of Apple Watches in its last fiscal year.

Fitbit’s forecast revenue for its fiscal year ending in December is right around the same figure. If Fitbit misses that number that will be bad news for the stock. Likewise, exceeding it will be good news for the stock. For the third quarter, anything around $400 million in revenues will send the stock up sharply.

For their part, analysts remain bullish on the stock, with several reiterating their recommendations recently and at least one pushing its price target higher. Here is a sample:

• Cowen has a Hold rating and lifted its price target from $38 to $41.
• Piper Jaffray reiterated a Buy rating and price target of $60.
• Morgan Stanley reiterated its Overweight rating and price target of $58.
• Leerink Swann reiterated a Buy rating and $79 price target.
• Sterne Agee CRT initiated coverage with a Neutral rating and a price target of $45.

Fitbit traded at $40.76 midday Monday, up about 0.7% on the day in a post-IPO range of $29.50 to $51.90. The consensus price target on the stock is $52.13.

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