Focus on revenue growth
Fitbit (FIT) stated that the firm’s top priorities include adequate funding to invest in growth. It also aims to improve efficiency and globally scale the company. As seen earlier, Fitbit expects revenue between $725 million and $750 million in 4Q16, driven by softness in demand. Fitbit also expects that supply constraints in Flex 2 will result in $50 million of “unfulfilled demand.”
Gross margin and operating expenses
Fitbit’s management has stated that it expects gross margins in 4Q16 to be lower than previously forecasted, “driven by fixed cost deleveraging in our cost of goods sold,” causing a fall of “approximately 400 basis points due to lower revenue and higher costs related to scrap materials.” The company’s gross margin is expected to be 46% in 4Q16, as compared to 48% in 3Q16 and 45% in the first nine months of fiscal 2016.
Sales and marketing expenses are expected to drive operating costs in 4Q16, primarily driven by the launch of new products and advertisement during the holiday season. As Fitbit’s expenses grew faster than revenue in 3Q16, it aims to lower operating costs to offset softness in demand.
Fitbit also stated that its impressive cash flow and strong balance sheet will help the firm grow inorganically through acquisitions.
Fitbit continues to focus on product innovation and develop software features that will help the firm penetrate international markets. Notably, sales in Europe grew significantly during the past two quarters.
Fitbit intends to create brand loyalty over time and increase the installed base of its user community.