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Fitbit ( FIT ) stock tumbled Thursday after the maker of wearable fitness trackers said increased spending on marketing and R&D will cut into earnings near term. Fitbit shares were down 14%, near 14.50, in morning trading on the stock market today . The stock sliced through its 50-day moving average, a key support level, in touching a six-week low. Late Wednesday, Fitbit smashed Wall Street’s targets for the first quarter , but the company delivered mixed guidance for the current quarter. It earned 10 cents a share excluding items on sales of $505.4 million. Analysts polled by Thomson Reuters expected 3 cents EPS and $444.3 million in sales. On a year-over-year basis, Q1 sales rose 50%, but earnings dropped 63%. For the current quarter, Fitbit is projecting earnings per share of 8 to 11 cents excluding items on sales of $575 million at the midpoint of guidance. Wall Street had been modeling Fitbit to earn 26 cents a share on sales of $531.3 million. Fitbit competes in the health and fitness wearables market with Apple ( AAPL ), Garmin ( GRMN ) and others. Battle Of Fitbit Bulls And Bears Oppenheimer analyst Andrew Uerkwitz reiterated his outperform rating on Fitbit stock with a 12- to 18-month price target of 25. The digital health market is showing strong demand, but Fitbit management “is struggling with the pushes and pulls of operating a rapidly growing business,” he said in a research report. Volatility in operating expenses is pressuring the stock, he says. Fitbit bulls say the company is “striking while the iron is hot” and ramping up marketing and R&D spending to capitalize on the growing market. But bears argue that if Fitbit “takes its foot off the gas, the ride will stop,” Uerkwitz said. FBN Securities analyst Shebly Seyrafi maintained his outperform rating on Fitbit stock but trimmed his price target to 22 from 25. S&P Global analyst Angelo Zino kept his hold rating on Fitbit stock with a price target of 20. “Fitbit is seeing good penetration for its newest devices, Blaze and Alta,” Zino said in a report. “But we are cautious about elevated second-half expectations and intense competitive pressures.” Edison Investment Research analyst Richard Windsor said Fitbit’s higher sales and marketing spending has placed “unrealistic expectations of profitability” in the second half of the year. “This is particularly worrying as there are clear signs that commoditization is forcing the company to increase spending, hitting profits,” he said in a report. To meet its EPS guidance, Fitbit will need to generate 83% of its net profit in the last six months of the year, he said. “Given the environment, this looks to be a very tall order and there is likely a heavy cut to full-year EPS guidance coming either in June or October,” Windsor said. Piper Jaffray analyst Erinn Murphy reiterated her neutral rating on Fitbit, with a price target of 16. “While we are pleased with the traction of new products, we are wary of the Q4-weighted guide and opt to remain on sidelines,” she said in a report. Fitbit Dominates Fitness Device Market On the company’s earnings conference call with analysts, Fitbit CEO James Park expressed confidence in the company’s ability to continue to lead the nascent digital health market. “Fitbit has had an incredible and consistent track record of creating and launching innovative devices and software that people love,” he said. “Over nine years of creating and leading this category, we’ve gained a deep and proprietary understanding of the market and our customers.” San Francisco-based Fitbit is putting a lot of “marketing muscle” worldwide behind its Blaze fitness watch and Alta activity tracker, which were both launched in March, Park said. Retail sales tracker NPD Group on Thursday reported that Fitbit remained the king of connected digital fitness devices in the first quarter. It said Fitbit accounted for 81% of the dollars spent in the category in the U.S. in Q1. Fitbit does most of its business in the U.S. In Q1, 70% of Fitbit’s revenue came from the U.S. Europe, Middle East and Africa contributed 15% of sales, followed by Asia-Pacific with 11%. Scalper1 News
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