Fitbit Inc. expects to continue its transition toward smartwatches in 2018, as it plans a new “mass-appeal” release following disappointing holidays sales of its latest device.
Chief Executive James Park told MarketWatch prior to the company’s earnings call Monday that Fitbit
had aggressive sales goals for its new Ionic smartwatch during the holiday season, but ultimately sales of the device “didn’t turn out the way that we expected it.” That was due to a promotional atmosphere, limited app selection at launch time and a “prudent” approach to inventory after fumbling that a year earlier, he said.
Park said the company is in better shape now in terms of general app availability as well as product availability in new markets.
Overall, the company delivered revenue of $571 million for the December quarter and an adjusted net loss of 2 cents per share, both of which fell short of analysts’ estimates. Shares sank 10% in after-hours trading following the release.
For 2018, Fitbit plans to continue shifting its product focus to the smartwatch category, which is showing greater momentum than the basic fitness-tracker segment. The company also wants to generate more recurring revenue that’s independent of device sales, and to keep expenses in check.
On the product side, Park said he believes the company laid a strong foundation with the launch of its first official smartwatch, the Ionic, for which Fitbit created an operating system and software developer kit that it plans to leverage in future devices. While the Ionic was geared mainly toward health and fitness tasks, Park said investors can expect a more “mass appeal” smartwatch in 2018.
At the same time, he said Fitbit is “gradually end-of-lifing” a few products, mainly on the fitness-tracker side of the business, as it seeks to optimize its lineup and put a greater emphasis on watches.
Fitbit also sees plenty more room to grow its non-device revenue, which still represents less than 10% of total revenue, Chief Financial Officer Bill Zerella told MarketWatch.
Park said he believes the company’s recent acquisition of Twine Health, a coaching platform, is a “foundational piece” that will help it generate more non-recurring revenue in the health-care space. Fitbit’s marketing team will help generate interest in Twine, which combines both human coaching and digital monitoring, initially focusing on employers and health-care providers. Ultimately, the platform will become available to ordinary users.
Fitbit is also focused on trimming operating costs, aiming for a 7% reduction in 2018. Zerella said the company will be “very selective” in terms of hiring and will work down its non-workforce discretionary spending. “There will be a lot of optimization as we look to get through another year of transition while making sure we still invest in the things we need to come out the other side,” he said.