Sluggish fourth quarter sales contributed to Fitbit's underperformance in 2016, which has already prompted cost-cutting efforts and a re-assessment of the company's global business strategy.
New products such as the Blaze (pictured) comprised 70 percent of Fitbit's revenue in 2016, according to earnings released Wednesday. Over two-thirds of the brand's annual sales occurred in the United States. (Photo courtesy Fitbit.)
After originally forecasting as much as $750 million in 2016 fourth quarter revenue, San Francisco-based Fitbit Inc. on Wednesday reported $574 million for the period.
This discrepancy contributed to lower-than-anticipated revenue growth for 2016—11 percent—with the company reporting $2.17 billion in total earnings. This is compared to the original target range of $2.4 billion to $2.5 billion. Despite not hitting its 2016 revenue goal, the company still had greater revenue in 2016 than it did in 2015 when it brought in $1.86 billion.
The company’s underperformance has already prompted an internal reorganization initiative that cut more than 100 jobs from Fitbit’s global workforce. Other recuperative efforts include the hiring of a new executive vice president of operations, Jeff Devine, and shifting the company’s accessories strategy to one that values partnerships over direct production. This has reportedly cut the company's operating expense run rate by $200 million to ensure a 2017 rate of approximately $850 million.
“Our 10-year history of building this category, coupled with our powerful brand and engaged global community gives us confidence we are making the right investments to support our vision and drive long-term success,” CEO James Park said in the company’s latest earnings statement. “We will leverage our leadership position, recently acquired talent and IP, and the valuable data we collect to improve demand and continue to set the pace of innovation for the industry through more personalized experiences, deeper insights and guidance, expansion into new categories and deeper integration within the healthcare system.”
Fitbit sold 22.3 million wearable devices in 2016 after moving 21.4 million products in 2015. The company’s primary struggles came in the year’s final quarter when only 6.5 million devices were sold compared to 8.2 million in the fourth quarter of 2015.
New products including the Fitbit Charge 2, Fitbit Flex 2, Fitbit Blaze and Alta comprised 70 percent of Fitbit’s annual revenue. More than 70 percent of the year’s sales took place in the United States, while 18 percent occurred in Europe, the Middle East and Africa.
For the fourth quarter, Fitbit reported a GAAP net loss of $146.3 million and adjusted EBITDA loss of $144.2 million. For the year, the company reported a GAAP net loss of $102.8 million and adjusted EBITDA of $30 million.
For the first quarter of 2017, Fitbit executives are forecasting a revenue range of $270 million to $290 million. For the full year, they’re anticipating $1.5 billion to $1.7 billion in total revenue.
As part of its recuperative strategy, Fitbit aims to grow its global business with the help of a newly acquired Vector Watch engineering center in Romania. The company also expects to increase its presence in the smartwatch market, seeking to “invigorate and capture a large addressable market by leveraging Fitbit’s brand and vast experience delivering a best-in-class health and fitness experience on the wrist,” the earnings statement said.