Fitbit stock jumps after wearables pioneer posts first profit in two years

Fitbit Inc. shares soared more than 10% in after-hours trading Wednesday, after the wearables pioneer posted a surprise adjusted profit for its third quarter. It was the first time in two years that Fitbit generated positive adjusted earnings.

The company generated adjusted earnings per share of 4 cents for the quarter on revenue of $393.6 million. Analysts surveyed by FactSet were expecting a per-share loss of 1 cent and revenue of $381.3 million. Revenue increased slightly on a year-over-year basis, following many years of declines.

Fitbit’s

FIT, +7.01%

 earnings surprise reflected progress in the company’s cost-cutting efforts, with operating expenditures down 17% during the quarter. Management also highlighted strong performance on the product side as the Versa smartwatch continues to sell well. Chief Executive James Park said that the company is seeing “good momentum” for its new Charge 3 fitness tracker, which began to ship during the quarter.

International revenue grew 10% in the period, driven by strength in Europe, the Middle East and Africa. Park said he sees “very positive” demand for the Charge 3 in the region.

Read: Fitbit’s problems aren’t just Apple competition, says Morgan Stanley

Heading into the holiday season, Fitbit expects its device mix to shift a bit more toward fitness trackers, owing to the recent introduction of the Charge 3, which revived the company’s tracker offerings and wasn’t available for a good chunk of the third quarter. Management anticipates that mix shift to deliver a “slight uplift” to gross margins.

Overall, Fitbit forecasts 7 cents in adjusted earnings per share for the December quarter, above the 5 cents modeled by analysts.

The company has been trying to move beyond device sales to consumers and into more recurring-revenue opportunities within the broader health sector, but that business has been somewhat slow to take off. Management declined to discuss specific numbers for its health-solutions business but Park said that revenue growth of 26% for this area was a “big accomplishment” and reflected the fact that disease management is of increased importance to health plans and insurers.

“We’ve been able to capitalize on that need,” Park told MarketWatch.

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Fitbit ended the quarter with $623 million in cash and marketable securities on its balance sheet, just over half of its market value as of Wednesday’s close. Chief Financial Officer Ron Kisling told MarketWatch that while the company has adequate working capital, it’s “important to preserve opportunities to invest in growth.” The company sees potential to bolster its services business and delve further into the health ecosystem.

Shares have slipped 23% over the past 12 months as of Wednesday’s close, compared with a 5.3% rise for the S&P 500

SPX, +1.09%

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