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The most patient investors in wearable-fitness-device company Fitbit (NYSE: FIT) finally witnessed the long-promised turnaround. Revenues started to rise once again for the first time in a couple of years during the final quarter of 2018, driven by an annual increase in devices sold. It was a good holiday shopping season for the health-technology outfit, but progress on the services side of the business remains barely large enough to deserve its own callout. Ultimately, that means Fitbit's turnaround is left in a precarious position headed into 2019.
First, a full-year rundown
Total device shipments in the fourth quarter of 2018 were 5.6 million, a 3% year-over-year rise. That equated to flat year-over-year revenue at $571 million due to lower average selling prices, but a return to profitability at $0.06 per share. This was due to the company's cost-cutting throughout the year.
The fourth quarter was good news, especially as the company logged its second-straight year of falling sales and a third-straight year of losses.
| Metric | Full-Year 2018 | Full-Year 2017 | YOY Change |
|---|---|---|---|
| Revenue | $1.51 billion | $1.62 billion | (7%) |
| Gross profit margin | 39.9% | 42.8% | (2.9 p.p.) |
| Operating expenses | $793 million | $892 million | (11%) |
| Earnings (loss) per share | ($0.76) | ($1.19) | N/A |
| Adjusted earnings (loss) per share | ($0.20) | ($0.26) | N/A |
Data source: Fitbit. YOY = year over year. p.p. = percentage point.
Fitbit's positive traction to end 2018 was built on the back of new devices, especially the Versa smartwatch, Ace for kids, and Charge 3 fitness tracker. Together, the three made up 79% of all sales. The success of those wristband trackers is expected to carry into the new year: The company has forecast first-quarter sales up 1% to 8% and full-year 2019 sales growth of 1% to 4%. Additionally, earnings for the full year are expected to approach breakeven.
It's good to see Fitbit forecast growth, once again. However, that growth is expected to be meager after several years of declines, so the wearable maker remains in a tough position. Competition remains heavy from the likes of Apple, Samsung, and Chinese manufacturers like Xiaomi, making a business based on hardware sales not exactly a lucrative one. That's where health and other premium services were supposed to come in, but progress there remains slow.
Where's the service?
On the software and service side, Fitbit acquired health coaching service Twine Health last year (now part of Fitbit Care), which feeds into the Health Solutions platform. Fitbit's overall goal is to pair its devices -- including the Inspire and Inspire HR, available only through insurers and employers utilizing the Health Solutions platform -- with services to create recurring revenue. Health Solutions apparently grew by 8% in 2018.