Fitbit stock plunges nearly 33% as sales may be hitting a wall

Shares of Fitbit Inc. plunged more than 30% Thursday as the fitness tracker manufacturer lowered its financial forecast for the current fiscal year because of weak demand and expansion difficulties.

Fitbit’s stock closed at 8.51, down $4.30, or 33.57%.

Joe Wittine, senior equity research analyst at Longbow Research, said the company is reaching “some level of saturation” in its mature markets, such as the United States, Australia and New Zealand, and had planned to offset that trend with rapid growth in the potentially lucrative Asia-Pacific region.

Fitbit Chief Executive James Park acknowledged during a Wednesday call with analysts that the San Francisco firm was “starting to see some headwinds” in its business. He said growth in Asia-Pacific was “not where we had hoped,” and in fact fell 45%, to $36 million, in the third quarter.

The company on Wednesday reported 23% higher overall sales, or $503.8 million, for the third quarter ended Oct. 1. Net income fell 43% to $26.1 million.

Fitbit said it planned to improve its marketing in the Asia-Pacific region with additional customer research.

Fitbit also faced production problems with its Flex 2 fitness wristband and its swim-proof design.

Park said the Flex 2 was one of the “most complex” products it has ever designed or developed because it is so small — at just 0.6 ounces, it weighs less than a quarter of the original Fitbit Flex. Eventually, Fitbit had to rely fully on robotics to make the wristband, he said.

Fitbit said it expects the supply constraints for the Flex 2 to result in a $50-million drop in sales in the fourth quarter. The company said it should resolve the production problems by the end of December.

“While we feel good about our product portfolio in this holiday season, we’re taking a cautious view,” company Chief Financial Officer William Zerella said during the call.

Nick McKay, equity research analyst at Wedbush Securities, said Fitbit might be having trouble attracting enough new customers.

“When you cut guidance like that, not only do you stoke fears that it’s a fad product, but you also stoke fears that you might be reaching your domestic saturation point sooner than people expected,” he said. “They talked about demand issues potentially being an issue throughout Q4, so it’s unclear what the long-term growth for the company looks like at this point in time.”

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