Fitbit Inc. proved that the market for wearables continues to grow with a first-quarter sales gain of 50 percent.
But the company also demonstrated how the sector is growing more competitive, a dynamic that’s pushed it to ramp up spending on research and development, taking a heavy toll on profits and prompting a stock sell-off Wednesday. Shares of the company tanked 11.2 percent to $15.18 in after-hours trading.
“The strong growth and defensibility of our business continues to be powered by product innovation, the network effects of our community, our expanding global distribution and investment in our brand,” said James Park, Fitbit cofounder and chief executive officer. “Based on the first quarter’s performance and momentum, we are confident about the remainder of the year, which is reflected in our increased guidance.”
Fitbit’s first-quarters earnings for common stockholders fell to $11 million, or 5 cents a diluted share, from $15.6 million, or 22 cents, a year earlier. But prior to allotments for preferred stockholders a year ago, earnings fell 77 percent as research and development costs jumped to $72.2 million from $22.4 million a year earlier.
The company had a research and development staff of 755 in the first quarter, up from 295 a year earlier.
Revenues for the three months ended March 31 shot up to $505.4 million from $336.8 million. And for the full year, the company said its sales would range from $2.5 billon to $2.6 billion.
Fitbit has been looking to up its fashion quotient, introducing the $129.95 silver-plated stainless steel Alta this spring. It also teamed up with Public School on a range of accessories.
The company said it plans to increase research and development spending to “accelerate the pace of innovation to deepen its competitive moat.” It is also looking to increase in marketing for new products and to “accelerate the network effect of the company’s large user community, to strengthen consumers’ brand preference.”