Fitbit reported better-than-expected quarterly earnings and that its smartwatch will be released during a strategic selling period.
Second-quarter revenue is at $353.3 million compared to the expected $341.6 million, according to data from Thomson Reuters. Loss per share is at 8 cents, which is narrower than the expected 15 cents analysts’ consensus. In last year’s second quarter, revenue was at $586.5 million with 12 cents per share.
The health and fitness tracker maker also reported a net income of $58.2 million, or 25 cents per share, compared to a net income of $6.3 million, or 3 cents per share, in the same period last year.
Shares of Fitbit rallied 15 percent on Thursday, and closed Friday at $5.63, which is well below its initial public offering price of $20.
During the quarter, the company was able to sell 3.4 million devices between the periods April and June 2017, which is up 14 percent from sales of last quarter and in line with analysts’ expected 3.47 million units. According to James Park, co-founder and CEO of Fitbit, the demand had driven higher sales and inventory reduction.
“Our smartwatch, which we believe will deliver the best health and fitness experience in the category, is on track for delivery ahead of the holiday season and will drive a strong second half of the year,” Park said in an earnings statement. “In the long term, we are confident in our vision for the future and are uniquely positioned to succeed by leveraging our brand, community, and data to drive positive health outcomes.”
The company also said that 38 percent of the activations during the quarter are from customers who made repeat purchases, and that the Fitbit mobile app had been the no.1 downloaded health and fitness app for both iOS and Android, based on U.S. downloads.
For the third quarter, the company is expecting an estimated loss of 5 to 2 cents per share on revenue of between $380 million to $400 million. Analysts’ estimates are $393.1 million revenue with a loss of 5 cents per share.
The company’s second-quarter earnings report came after a major decline in the first quarter. During the earlier period, Fitbit reported its lowest sales figure in years. Data from Strategy Analytics also show that the company’s global share of the fitness wearables market fell to 15.7 percent in second-quarter of this year from 28.5 percent in the same quarter 2016. According to a report by Business Insider, there may be a decline in the market for fitness trackers even with Fitbit’s recent rebound.
One of the major factors contributing to this downward trend is the emergence of low-end smartwatches and trackers, which is led by Xiaomi. The Chinese brand has currently taken over as the world’s leading wearables vendor, with about 3.7 million total shipments in the second quarter compared to 3 million in the year-ago period. Xiaomi has now gained control of 17 percent of the global market share, International Business Times reports.
There is also the threat of Apple’s growing dominance in the area of high-end wearables, and competition may be tougher with the rumored release of the Apple Watch 3 underway.
Also, fitness trackers are believed to have no impact whatsoever on a person’s health and habits, according to a recent US study. Likewise, a Stanford University study showed that fitness trackers may lack accuracy in depicting calorie count.
“We view the success of the smartwatch launch as a lynchpin for Fitbit’s future growth prospects and potential for a return to profitability,” analysts at Stifel wrote in a note to investors. “With years of focus on health and fitness, Fitbit brings a unique point of view to this market but execution risk for the comprehensive offering remains and consumer appetite for the product in a crowded competitive landscape remains unproven.”
For the full year, Fitbit expects between $1.55 billion and $1.7 billion revenue. The company’s stock has dropped 20.4 percent this year.