Fitbit's preliminary Q4 numbers are in, and to say the least they're looking a little flabby. In fact, the connected health vendor's financials are so out of shape that it's planning to chop its workforce and make a strategic shift. Here are the key details from its announcement:
Fitbit expects to report 6.5 million devices sold and revenue for the fourth quarter of 2016 to be in the range of $572 million to $580 million, compared to the company’s previously announced guidance range of $725 million to $750 million. For the full-year 2016, Fitbit expects annual revenue growth to be approximately 17% from the previous forecasted growth of 25% to 26%. Non-GAAP diluted net loss per share for the fourth quarter is expected to be in the range of($0.51) to ($0.56) compared to the previously announced guidance range of non-GAAP diluted net income per share of $0.14 to $0.18.
Ouch. No pain, no gain though, right? Fitbit did say that revenue was strong in select markets, such as EMEA, which logged a 58 percent uptick during the fourth quarter. Still, it wasn't enough to avoid a planned 110 layoffs—amounting to 6 percent of Fitbit's total—and shaving a few inches of its operating expenses for 2017 by about $200 million to $850 million.
Fitbit says the cost-cutting plan will include "realigning sales and marketing spend and improved optimization of research and development investments," wording that provides few specifics.
The true money quote in Fitbit's release came from CEO and co-founder James Park, who said:
Looking forward, we believe Fitbit is in a unique position to stimulate new areas of demand by leveraging the data we collect to deliver a more personalized experience while developing upgraded versions of existing products and launching additional products to expand into new categories ... As the overall wearable category leader, we exited the year with an engaged community of over 23.2 million active users, making us uniquely positioned to be the partner of choice for the healthcare ecosystem, which is a key component of our long-term strategy.
That statement makes it clear that Fitbit plans to flex its big data muscles going forward as a path to lasting profitability and growth. Executives are expected to dicuss the results further during a conference call next month.
While connected health is a vertical play, Constellation Research believes Fitbit's woes and plans for a rebound hold some lessons for all enterprises looking to leverage data and analytics in their business models.
"If most Fitbit customers are like me, interest wanes and usage falls off after the purchase," says Constellation VP and principal analyst Doug Henschen. "Charging for analytical services puts them in the razor blade—i.e., subscription renewal—business, and they might also see it as a way to incent people to use what they've paid for. The more people engage with the product, the more likely they are to upgrade."
With its planned shift, "Fitbit is realizing what Nike learned from it’s FuelBand project," says Constellation founder and CEO R "Ray" Wang. "The value is not in the hardware, but in the analytical insights and services of a platform. The key to growing the ecosystem is pairing the hardware sales with useful personal apps and collaborative apps that allow for gaming and goal-driven adoption."
"Fitbit needs to work to develop an ecosystem of app developers that will find the one critical app for the segment they are going after," he adds. "And the differentiation and product mix between freemium and premium has to make sense."
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