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Fitbit Does It Again; Beats Expectations for Earnings, Revenue

By U.S. News & World Report

Stocks mentioned in this article: FIT AAPL GOOG GOOGL GRMN BABA

Fitbit (ticker: FIT), the market leader in wearable fitness-tracking products, reported second-quarter earnings and revenue that beat expectations, sending FIT stock soaring in after-hours trading. Shares gained as much as 6 percent in the minutes after the release.

Fitbit reported adjusted earnings per share of 12 cents on revenue of $586.5 million, up 46 percent from a year ago. Analysts were expecting FIT stock to earn 11 cents per share on revenue of $578.5 million. A year ago, Fitbit earned 21 cents per share on revenue of $400.4 million.

Third-quarter guidance was right about where analysts thought it would be; Fitbit guided for adjusted EPS between 17 cents and 19 cents on revenue between $490 million and $510 million. Consensus estimates called for EPS of 17 cents per share on revenue of $498.5 million, an increase of about 22 percent from the previous year.

“Fitbit has been pushing to stay atop the latest fitness fads, investing heavily to drive sales and reduce the time between product launches,” says James Gellert, CEO of Rapid Ratings, a financial health ratings firm. “The next few quarters will tell if these high operating costs are the company’s norm, but it seems like the company is able to envision the next big thing and act on it quickly.”

The streak continues. Fitbit has a history of beating earnings and revenue expectations but still seeing its stock price tumble. The market has been adept at finding the downside in earnings reports past, with the most recent concern being slumping margins. That appeared to be the case again immediately after the second-quarter report, when shares initially wavered after the earnings release.

[See: The 10 Best Ways to Buy Tech Stocks.]

Fitbit shares have been rocked this year, with the stock off more than 55 percent in 2016 going into Tuesday’s report.

Fitbit went public in June 2015, and going into its second-quarter report on Tuesday the company had never missed on earnings — or revenue. The company is now a perfect 5-for-5 when it comes to earnings and revenue beats, so Wall Street’s embrace of the stock makes sense after a long history of exeeding expectations and going unrewarded.

The source of pessimism. The main source of pessimism from investors has come from the company’s rhetoric, which in previous quarters has been heavily focused on investing. For some myopic traders on Wall Street, that translates into nothing more than higher expenses, which put a dent in the bottom line.

To be fair, the ramp-up in spending in areas like research and development and sales and marketing has been fairly dramatic: In the second quarter, R&D spending jumped 162 percent to $79.9 million, while sales and marketing spending soared 69.5 percent to $118.1 million.

In the first quarter, R&D spending was up 222 percent to $72.2 million while sales and marketing expenses jumped 144 percent to $107.1 million, so the spending spree appears to be slowing down somewhat.

Non-GAAP gross margins fell from 47.2 percent in the year-ago quarter to 42 percent last quarter. The decrease was due to higher warranty reserves for legacy products, a figure that’s expected to normalize going forward, allowing margins to rebound to more normal levels. That said, as a result of the warranty issue, Fitbit did reduce its gross margin guidance for 2016 from between 48.5 percent and 49 percent to roughly 47 percent, so that is indeed a negative.

[Read: Why Warren Buffett Snapped Up Apple Stock (AAPL).]

As for competition though, it’s had little effect on Fitbit’s sales, as evidenced by last quarter’s 46 percent surge in revenue.

Competition. The Apple (AAPL) Watch, once thought to be a threat to Fitbit’s grip on the wearables industry, has failed to live up to the hype surrounding it. One issue may be the price point: The cheapest version of the Apple Watch, the 38mm Apple Sport, sells for $299. The priciest, the gold-plated Apple Watch Edition, goes for $17,000.

There isn’t a single Fitbit device that goes for as high as $299. Its most expensive, the Fitbit Surge, sells for $250, and several products retail for $100 or less.

Garmin (GRMN), Xiaomi, Samsung, Alphabet’s (GOOG, GOOGL) Android Wear line, and many other competitors have also entered the fray.

According to the International Data Corp., increased competition has indeed driven down Fitbit’s market share in the wearables space from 32.6 percent in the first quarter of 2015 to 24.5 percent in this year’s first quarter. But while Fitbit’s slice of the pie is shrinking, the pie itself is growing rapidly, allowing Fitbit to keep growing on an absolute basis in the process.

In the first quarter, IDC estimates that the wearables market grew 67.2 percent overall; Fitbit, despite its slip in share, still remains the top global vendor in the space by shipment volume.

Modest valuation given its growth profile. Going into the second-quarter earnings report on Tuesday, FIT stock traded for less than 10 times projected 2017 earnings, a steep discount to the Standard & Poor’s 500 index, which trades for more than 18 times forward earnings.

While international growth could eventually be one of the main drivers for FIT stock, the U.S. is still far and away the most important market. Nearly 76 percent of revenue came from the U.S. last quarter, and domestic sales surged 42.4 percent to $445.2 million last quarter, up from $312.7 million a year ago.

Still, international sales accounted for 24 percent of overall revenue, up from 22 percent a year ago despite the closing of a prominent Australian retailer denting results last quarter.

More importantly, Fitbit teamed with Alibaba Group Holding’s (BABA) TMall online retailing platform in a new partnership, in a deal that reportedly drove 100 million consumer impressions last quarter. The company also released products aimed at native Chinese, Japanese, and Korean speakers, which should aid sales growth in those regions.

Helping the surge? At last check, 35.4 percent of Fitbit shares — a total of 43.6 million shares — were sold short. High short interest can trigger what’s called a “short squeeze,” where those betting against the stock are forced to “cover” their position, buying back the stock and sending the price higher.

[See: 10 Long-Term Investing Strategies That Work.]

Short squeezes are most common when there’s reason to be optimistic about the stock in question, making bears want to close their trade. While Fitbit’s second-quarter results were good in and of themselves, we could be seeing certain aspects of a short squeeze at work in the post-earnings rally as well.

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Fitbit Does It Again; Beats Expectations for Earnings, Revenue originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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