Fitbit and the beat that lost me 15%

“The law is inside out; the world is upside down!” - Javert, Les Miserables

Fitbit had an incredible beat this quarter. Revenue of 440M was expected. They made 505M! Earnings of about $0.02/share were expected. They earned 5 times that. So of course, the stock is down 15% today.

So of course, one would assume guidance took a big hit (like how Twitter just came in nowhere NEAR the expected 700M for Q2 – they guided for like 600M). However, Fitbit actually RAISED guidance for the rest of the year. Revenue for Q2 came in higher than analysts expected!

The Market chose to throw a hissy fit because Fitbit is front-loading R&D into Q2, so they won’t show a lot of earnings in Q2. Again, they RAISED guidance for EPS for the year, they’re just expecting most of it to come in Q3 and Q4.

In other words, they did even better than they said they would, even better than I’d hoped they’d do, even better than analysts expected, and the stock is down 15%.

This is a pretty good lesson for me. I don’t always agree with the extent of the market’s reactions, but this may be the first time it seems directionally irrational altogether. I could be picking up shares on the cheap today, but already have a very oversized position which I added to a couple days ago. So I guess my takeaway is this:

I am going to stop trying to predict how a stock will react to the company’s quarterly earnings, because even if I’m right, that doesn’t mean the market will react as I expect. I am going to stop loading up on things before earnings because I’m confident of a beat. I will simply enjoy the good results when they come, and use the (possibly more common) dips after earnings as the time to load up on things that the market over-reacts to, like FIT’s “weak” EPS guidance for next quarter.

If you don’t have a position in Fitbit, today would be a good day to start one – 15% off sale!

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Oh, I can’t resist. I’m buying more anyway. Screw reasonable position sizing.

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Yep, frustrating isn’t it Paul. I own no FIT, but have experienced what you are describing.

If you don’t have a position in Fitbit, today would be a good day to start one – 15% off sale!

I strongly disagree. The market is getting this one right. This a company whose future is blocked by the immovable object called AAPL. This stock is headed to the single digits.

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…this may be the first time it seems directionally irrational altogether.

Really? Consider yourself lucky if this was the first time it’s happened to a stock you own, there will be more! I’ve noticed it quite a few times.

I am going to stop loading up on things before earnings because I’m confident of a beat. I will simply enjoy the good results when they come, and use the (possibly more common) dips after earnings as the time to load up on things that the market over-reacts to…

I finally came to this conclusion a couple quarters ago. I used to often buy before earnings announcements, but feel like I’ve been burned by them more than rewarded, so I made a rule for myself to not buy within about a week of earnings if I’m doing it solely hoping to get a quick pop.

I’m not a FIT owner (the stock, but do use a Charge HR), but I would urge caution with overloading too much on a stock like this. It is very “fad-like” and could be very easily disrupted. If Apple so much as mentions a fitness only tracker, FIT will tank for good IMO.

Not saying don’t be an owner, just I would be cautious overloading on a tech stock like this.

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And if you want to buy the product at a 15% discount, go to Costco; at least the one that I went to today had them on sale.

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Paul, you’ll want to read this, if you haven’t already:

http://blogs.barrons.com/techtraderdaily/2016/05/05/fitbit-p…

I’m not seeing a reason to jump on buying/adding right now. It’s unlikely that FIT is going to jump anytime soon. I’d be inclined to wait and let things develop a bit. This could be another GoPro.

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And if you want to buy the product at a 15% discount, go to Costco; at least the one that I went to today had them on sale.

While I have no position in FIT, I did buy a Charge HR last December at Costco for a very good price. I’ll also add that I’m very happy with my Charge HR and I believe it is helping me alter a few behaviors, e.g. often taking the stairs rather than the escalator, and walking more that should improve my health.

Cheers,
Chris

Mr Fungi,

It’s unlikely that FIT is going to jump anytime soon.

I won’t argue with this, or venture a guess of any kind. My desire to predict the proclivities of Wall Street is in the toilet today.

This could be another GoPro.

I will re-post my thoughts on Fitbit vs GoPro below. Regarding the reasons this might or might not happen to Fitbit, I think the product mix and steady sales are among them. I’d be happy to discuss further.

In my opinion, the fact that this is a common question is creating a great opportunity for Fitbit investors. So many people got hurt by GoPro, and that is part of the reason Fitbit shares went from $50 in August to $12 in February. But at present the two companies couldn’t be more different. Fitbit is expected to grow 32% this year (and as I’ve said, this might increase). GoPro is expected to shrink 15%.

Obviously, as with any company, these numbers can change at any time. But think about the reasons why this might or might not happen to Fitbit, and the reasons it happened to GoPro, and I think you’ll be on the way to evaluating these companies on their own merits.

Of course, this is all my opinion.

Trying to make sense of why these things happen will drive you to an early grave and do no good. If you still objectively like it you can hold, if not you can sell. That’s really it at the end of the day.

SHOP doing the same thing after earnings. PYPL did the same thing as well last week, although not as pronounced it went nowhere after reporting decent numbers.

Could be as simple as a big player took some profits, that caused a few others’ stops to be hit, prompted a bit of panic thus others sell to not lose their profits. Next thing you know it comes right back to the origin of a recent move.

In the case of Fitbit it could go back to $13 or even $12 pretty easily before finding a lot of buyers again.

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Paul

I know nothing about the company and have no real interest developing a position.

However, I do know quite a bit about innovative and research based companies and so I will point out that it would be very unusual for R&D expenses - rather than exceptional items - to jump up for 1 quarter and then to drop back down for the next 2.

Did they give any more color on why they were expecting this phenomenon?

If not, then my expectation would be that the Street believes that the R&D expenses will go up, but they will only believe that they will come back down again when they see it.

Hope this helps

Cham