Fitbit stock stumbled dropping 14 percent to trade at $44.02 after the company reported runaway revenue for the second quarter. The wearable fitness band-maker reported earnings after the market close on Wednesday. Fitbit delivered revenue of $400 million or 21 cents per share, much higher than the estimate of eight cents a share on revenue of $319 million. However, investors sold off the stock because they were displeased with the drop in gross margins and lower third-quarter guidance.
Margins dropped to 47 percent, a decrease of 4 percent from last year. There is concern that the company is spending more and selling the products for less. Fitbit blamed the reduction on currency issues related to the strong dollar. However, expenses did rise 253 percent in the quarter as a result of media campaigns.
Fitbit is projecting that third-quarter revenue will be in the range of $335 million and $365 million, lower than the past quarter. Earnings per share for the third quarter are being guided to a range between 7 cents and 10 cents a share.
Fitbit got a big boost in the quarter as consumers purchased the device as Mother’s day and Father’s Day gifts. Fitbit sold 4.5 million devices in the quarter and continues to upgrade the software, like including the ability to track biking.
Some investors worry that the product is a fad, but Fitbit said that by 2019, the marketing company IDC projects the market for wearables will grow by 6 percent with shipments of $126 million and representing a $28 billion worldwide revenue opportunity.
Adidas also doesn’t believe the product is a fad. The German athletic shoemaker just paid $240 million for the wearable company Runtastic. The increasingly crowded fitness device market is also filled with Nike’s Fuelband and the Misfit Shine product. Runtastic is a smallish device that retails for $119.99, which is slightly higher than the others.
Fitbit products start at $59.95 for the Zip and go up to $249.95 for the Surge. For the fashionistas, there is a Tory Burch accessory that the Fitbit slides into and that retails for $175.00 without the Fitbit device.
Fitbit investors shouldn’t be too upset over today’s selloff because the stock is still up 48 percent since going public in June. Fitbit priced its stock at $20 a share on June 17.