Research and development up 93% in 3Q16
As we saw in the previous part of this series, revenues for Fitbit (FIT) rose 23% YoY (year-over-year) in 3Q16. Revenues have increased substantially over the past few quarters. Fitbit has placed a significant focus on its R&D (research and development) spending.
It’s essential for technology product companies, including Apple (AAPL), Fitbit, and Garmin (GRMN), to invest heavily in product development in order to maintain market share. Fitbit’s expenditures in R&D for 3Q16 rose 93.5% to $82.97 million.
Fitbit’s R&D expenses accounted for 9.8% of revenues in 3Q14. In 3Q15, R&D expenses were 10.5%, and in 3Q16, they rose to 16.5% of total revenue. In 3Q16, net income fell 43% YoY to $26.12 million, primarily driven by the increase in R&D expenditures. The company’s sales and marketing expenditures also rose by 23% in 3Q16 to ~$80 million, up from ~$65 million in 3Q15.
Why R&D is important for Fitbit
Fitbit Chief Executive Officer James Park stated: “Investment in R&D is paying off in new ways…We also continue to make investments in design, building up our in-house industrial design team, as well as partnering with notable fashion brands, like Tory Burch, Public School, and Simply Vera, Vera Wang to enable personal customization. Our R&D head count ended the quarter at approximately 60% of the employee base.”
Fitbit had earlier stated that its battery for devices with Pure Pulse heart rate technology can last up to five days, depending on usage and other factors. This was driven mainly by spending in R&D.