Fitbit will report its December 2015 quarter earnings coming Monday. It has almost become the “Kleenex” of wearable fitness market but we need to ask if all the hype is worth the very high multiple we pay for the stock. I discussed previously about its weak product strategy, signs of that weakness will come clearer on its earnings report. What to watch for in the earnings report?
- Number of units sold is a big indication of its continued growth. In the previous quarter Fitbit sold 4.08 million units. Given the holiday quarter will engender additional sales from people driven by fitness goals and gifting, we should expect a big bump. Compared to same quarter last year when they sold 5.3 million units, we should expect 6.9 million units for a YoY growth of 83%. If it is any lower it indicates the accelerated plateauing growth curve.
- Average Selling Price – This is simply calculated as reported revenue divided by number of units. Their ASP has been languishing below $90. Their hope is to sell more of their $250 device to bring up the ASP. Unfortunately that device falls short of customer expectations for a smart watch and product reviews recommend customers are better off sticking with its $149 device.
- Gross Margin – With increased volume and with the core technology remaining essentially same we should expect gross margins grow 200 to 300 basis points to get back over 50% watermark.
One thing that will be absolutely critical for investment decision is device abandonment rate – what percentage of customers abandon devices after each milestone? This is more important for the next quarter as the New Year resolutions fall by the wayside and people who get Fitbit as gifts feel less attached to it than those who buy for themselves. Unfortunately we will not see that number even though Fitbit has complete visibility into it.