Can Fitbit Win Q1 Earnings Despite Questionable Guidance?

Fitbit Inc. (NYSE: FIT) is scheduled to report its first-quarter financial results after the markets close on Wednesday. Thomson Reuters has consensus estimates of $0.03 in earnings per share (EPS) on $443.24 million in revenue.

In the fourth quarter the company sold 8.2 million connected health and fitness devices. Also revenue in the United States grew 100% year over year, EMEA grew 191%, APAC grew 6% and Other Americas grew 77%.

Active users grew, 152% to 16.9 million at the end of 2015, compared to 6.7 million at the end of 2014. Also the company added 18 million new registered device users in 2015, of which 13 million, 72%, were active users at year-end, and the total year-end 2015 registered device users was 29 million.

Despite such strong results, the guidance for the second quarter is what tanked this stock. Fitbit detailed in its first quarter report:

For the first quarter 2016, Fitbit expects several dynamics to drive results. For the first time in the company’s history, Fitbit will make a global launch of new products, Fitbit Blaze and Alta. Launching media campaigns around the world is expected to drive higher sales and marketing expenses for the quarter. Also, the timing of shipments into sales channels may result in the majority of reorders, especially for Alta, coming in the second quarter of 2016. The company also expects to incur additional manufacturing costs in the first quarter to maximize production of new products to meet expected demand, which is expected to impact gross margins in the quarter.

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Prior to the release of the impending earnings report, a few analysts weighed in on Fitbit:

• Pacific Crest reiterated a Hold rating.
• Piper Jaffray reiterated a Hold rating.
• Mizuho reiterated Buy rating.
• Cowen has a Market Perform rating with a $20 price target.
• Citigroup reiterated a Buy rating with a $30 price target.
• Morgan Stanley reiterated a Buy rating.

So far in 2016, Fitbit has underperformed the broad markets, with the stock down about 42%.

Shares of Fitbit were trading down 1% at $17.00 Wednesday morning, with a consensus analyst price target of $23.33 and a 52-week trading range of $11.91 to $51.90.