Fitbit Testing Bundling Models for Premium Services: Cuts FY 2019 Forecast
Fitbit cut revenue projections for the rest of the year after Q2 Versa Lite smartwatch sales fell short, said CEO James Park on the company’s Wednesday earnings call. The company cut full-year revenue guidance to $1.43 billion-$1.48 billion from $1.52…
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billion-$1.58 billion. Park attributed the Versa miss to Fitbit’s price and go-to-market strategy. It added Versa Lite in Q1, hoping to lower the barrier to entry for consumers looking for a quality smartwatch with certain core features and shifted to an everyday low-price strategy from a promotional one, resulting in a “lower promotional dollar spend and less sell-through,” he said. The watch received good reviews, but the company found “consumers were willing to pay more for a smartwatch with additional features or look for discounting versus everyday value,” Park said. Smartwatch revenue fell 27 percent year on year in Q2 and declined to 38 percent of total revenue, from 54 percent a year ago, said the company. Disappointing Versa Lite sales were offset by growth in trackers, with 59 percent of total revenue, up from 51 percent in the 2018 quarter, it said. Forty-one percent of Q2 activations came from repeat users. The company is testing premium services and plans a full launch in the fall, a "critical part" of changing the Fitbit model from one that's "episodic" with a customer device purchase to one that's "long term," said Park. It's planning to bundle services and devices, including giving away certain devices for free and then having a recurring revenue services stream associated with the device, he said. Fitbit Health Solutions revenue grew 16 percent to $24 million in Q2 and is on track to meet its $100 million revenue goal for the year, said the company. Of the $314 million in Q2 revenue -- up 5 percent year on year -- 33 percent came from Fitbit’s direct channel, it said. U.S. revenue declined 1 percent year on year to $181 million. Long-term, Fitbit shares could increase if services revenue returns the company to profitability, wrote Wedbush analyst Michael Pachter in a Thursday investor note. “However, it is taking longer than expected to roll out and expand these services,” said the analyst, saying in the meantime, device sales “are stagnating as both the novelty wears off and competition increases.” Shares plunged 21 percent Thursday to $3.31, a 52-week low.