The Fitbit stock rises sharply in the third quarter

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Fitbit

Stock (FIT) climbed steeply on Thursday morning when the company announced encouraging numbers for the third quarter and prompted investors to come closer to the same end to end the year. But for investors who think that its destiny is not limited to being "just" a manufacturer of devices, the most important information may well appear in 2019.

For the moment, investors look forward to welcoming its latest results and updated prospects in the near term. The smartwatch company and fitness tracker posted a quarterly profit (using non-standard accounting) after recording a loss last year and then told investors to expect another in the fourth quarter.

And the reaction (the Fitbit shares have risen more than 24%, just below $ 6 per share on Thursday morning), indicates a certain degree of belief that Fitbit, still at the shelter of its post-IPO highs , has crossed the cap. According to Dow Jones data, the Fitbit shares were well positioned to record their largest percentage increase from one day to the present day.

Fitbit was essentially forced to switch from the tracking device manufacturer to the smartwatch company
Apple
of the
(AAPL) Watch has basically started the category. According to IDC, Fitbit accounted for more than 9% of all notebook shipments worldwide in the second quarter, helped by its Versa watch.

Since Fitbit has added smart watches to its range, these now account for about half of its revenue. As a result, overall Fitbit average sales prices increased, but gross margins decreased. (Although this was a little helped, according to the management, thanks to a better quality of device, which reduced the costs related to the guarantee.)

Management said gross margins, which had dropped from one year to another in the third quarter, could improve in the fourth quarter, its most important financially, partly due to its last tracking tool, arrived in the middle of the last quarter. Cleaner inventories mean fewer promotions on old products, said CFO Ron Kisling Barron in an interview Wednesday.

The solution to unlock the next growth stage at Fitbit can come from the healthcare sector, as partnerships with this sector could generate revenue opportunities ranging from direct sales to health plans and data analysis. The purchase of a company called Twine Health earlier this year led to the launch of Fitbit Care, a platform
Humana

(HUM) now uses to provide coaching and information to its members.

At present, health care accounts for less than 10% of Fitbit's income. (The company, however, announced Wednesday the publication Wednesday 26% growth greater than growth.) Conference call, a transcript of which was available on Seeking Alpha.

This, says Park, should mean both device sales and user-specific revenues of participating organizations. (He said he expects "predictable revenue sources" rather than peaks of activity as his business grows.) It could also potentially generate earnings-related earnings: On Wednesday, Park suggested "to possibly share some cost savings."

Fitbit is still quite discreet about the health sector, although Park said Barron as it grows, investors can expect "more transparency" next year.

Wedbush analyst Michael Pachter on Thursday reiterated his note for Outpeform. Its target price of $ 6.50 is exactly the current average of Factset. He considers that the new Charge 3 tracking system is both an attractive device for the consumer and an option for healthcare-related users.

"We believe that Fitbit has an excellent future opportunity with MedTech," wrote Pachter. "We continue to believe that Fitbit's current share price offers an excellent opportunity to get involved in the medical technology sector."

But Yuuji Anderson, at
Morgan Stanley
,
Holds back. It has a price target of $ 4 on stock, lower than current prices, and remains focused on the company's vacation demand for appliances.

"We believe that much of the outperformance in the last two quarters was related to the timing of new product launches, and we are also interested in the levels of vacation sales and inventory levels of the year. because they better represent Fitbit's demand trends, "said Anderson. "Our vision remains skeptical."

Send an email to David Marino-Nachison at [email protected]. Follow him to @marinonachison and follow Barron's Next to @barronsnext.