Fitbit said it will eliminate about 110 jobs, or 6 percent of its workforce, while also disclosing that fourth-quarter results won’t meet analysts’ estimates amid declining demand for its fitness trackers.
Fitbit expects to report that it sold 6.5 million devices in the quarter ended December 31 2016, with revenue of $572 million to $580 million (roughly Rs. 3,881 crores to Rs. 3,936 crores), compared with the company’s previously announced range of as much as $750 million (roughly Rs. 5,090 crores), the company said in a statement Monday. Analysts were expecting $736.4 million (roughly Rs. 4,998 crores), on average. For the full-year 2016, Fitbit expects annual revenue growth to be about 17 percent, down from the previous forecast of 25 percent to 26 percent. Official results are due to be released in late February.
The shares fell the most in almost three months, tumbling as much as 13 percent to $6.25 in New York. That’s the lowest intraday price ever for the stock, which has dropped more than 50 percent in the past 12 months.
Fitbit has struggled to maintain momentum for its watches, which were initially popular as a way to track steps and encourage exercise, but then quickly relegated to gadget status. At the same time, they’re facing competition from Apple Inc.’s watch and cheaper Chinese models. Chief Executive Officer James Park has been trying to turn Fitbit into a digital health company that relies less on consumers and sells a range of technology to the health-care industry. But that strategy will take years to unfold.
“This highlights the risks of relying on a hit-driven device business where consumer tastes are fickle, competition intense, and differentiation limited,” SunTrust Robinson Humphrey Inc. analyst Kunal Madhukar said in a note to investors after the news was initially reported by The Information. He reduced his price target on the stock to $8 from $10 and maintained a hold rating.
The company said it sees 2017 revenue of $1.5 billion to $1.7 billion and expects a “challenging YOY comparison in the first half of 2017 as new products introduced in the first half of 2016 comprised more than half of revenues.”
Fitbit already slashed its sales forecast in November for the crucial holiday season when retail companies generate most of their revenue. Earlier this month, a report by Cleveland Research said Fitbit halted production in mid-December because the devices were piling up at retailers and suppliers amid disappointing sales.
“To address this reduction in growth and what we believe is a temporary slowdown and transition period, we are taking clear steps to reduce operating costs,” Fitbit said in the statement.
The company said it’s conducting a reorganization of its business to create a more efficient operating model. That effort will cost about $4 million in the first quarter of 2017.