GoPro and FitBit Find that Hardware is a Hard Market, Stocks Tank Post Earnings Release

FitBit and GoPro announce disappointing earnings, stocks tank

Earlier this week technology companies FitBit (NYSE: FIT) and GoPro (NASDAQ: GPRO) both released their quarterly earnings, and it wasn’t a pretty sight. Investors seem to have finally found something to worry about, with both companies citing production issues as their biggest challenge over the past quarter.

While GoPro stock plummeted 20% on Thursday after the earnings call, FitBit was devastated by a 34% drop in stock price a day earlier after their own earnings call.

FitBit Not Feeling Too Fit

Wearable technology company FitBit announced during its earnings release that its revenue forecast for the upcoming holiday season were much softer than expected. They guided in the range of $725 million to $750 million, a far cry from analyst expectations of $985.1 million.

When you consider that the top end of that guidance is only 2-5% over last year, while analysts were expecting 38.4% from the 23.1% growth the company showed between Q3-15 and Q3-16, it’s easy to see why the stock tanked on the news. FitBit stock is now trading at under $10 for the first time. The peak was around $47 at the end of July 2015, shortly after its IPO ($20) in June 2015.

FitBit CEO James Park tried to put a positive spin on things by saying: “The overall category still has a lot of demand and growth. And overall our products are being well received.”

But the market wasn’t buying it. And CFO Bill Zerella talking about softness in the wearables market, production problems with the Flex 2 wristband and a transition to a newer line of products only made matters worse.

Data from IDC shows that the wearable technology market is expected to grow by 29% this year and double by 2020. That’s probably why “softness in the wearables market” wasn’t the best explanation the company could have given. Softness for FitBit products? Perhaps.

GoPro’s Big Woe

GoPro didn’t fare all that much better than FitBit, losing 20% after the company followed suit from FitBit and guided weak numbers for Q4 as well as FY16.

Q3 losses for GoPro stood at $0.60 per share on the back of $241 million in revenues, while consensus was a loss of only 35 cents with $319 million in revenues.

In GoPro’s case, the curse of production issues seems to have rubbed off from FitBit, but the company says that it has fixed those problems. But again, as with FitBit, president Tony Bates saying that “demand is strong” after the production issues were ironed out simply didn’t cut it with investors.

GoPro is currently trading under the $12 mark – a long way from its high of around $87 in October 2015.

But looking at IDC’s estimates, one wouldn’t say that the overall market is soft. In fact, a 29% growth in 2016 is pretty impressive. The only way it can double by 2020 is if the CAGR remains at double-digit levels. If that’s the case, then it’s merely a question of competition and product appeal for both companies.

In the wearables market there are giants like Apple, Samsung, Garmin and Xiaomi waiting to break the magic of industry leaders like FitBit. And if FitBit itself can’t grow, that either means lower demand or tighter competition. It’s clearly not the first.

GoPro possibly has a brighter future, with founder and CEO Nicholas Woodman saying at the earnings call:

“Looking forward to 2017, we expect to return to profitability, driven by the strength of our new products, double digit revenue growth and annual operating expenses of approximately $650 million.”

Moving forward, it’s going to be extremely hard for both FitBit and GoPro to pick up the pace and show investors that there is still a strong demand for their products in the market. If they can’t do that, then their stock will inevitably move sideways for an indefinite period of time.

In FitBit’s case that’s almost guaranteed unless they can turn things around quickly. GoPro may have a better go of 2017, if Woodman’s words prove true.

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