Fitbit Stock Falls to Key Support After Weak Guidance

Product Mix and Competition Pressure Margins

Fitbit, Inc. (FIT) shares fell more than 10% on Thursday morning despite the company posting better-than-expected fourth quarter financial results. Revenue was flat at about $571.2 million, beating consensus estimates by $1.85 million, and non-GAAP net income reached 14 cents per share, beating consensus estimates by seven cents per share. Active users grew about 9% to 27.6 million, but changes to the product mix sent gross margins slightly lower to 38.7% during the quarter.

Despite the strong financial results, the company's weak guidance caught the market off guard. Fitbit expects to generate revenue of $250 million to $268 million during the first quarter, which was short of the $272.3 million that analysts were expecting to see. The company's full-year revenue target of $1.52 billion to $1.58 billion is still on par with analyst estimates of $1.57 billion, but average selling prices are expected to come down, leading to breakeven EBITDA at best.

Furthermore, Fitbit faces increasing competition from Apple Inc.'s (AAPL) Apple Watch, Garmin Ltd.'s (GRMN) smartwatches and Samsung Electronics Co., Ltd. (005930.KS) product lines.

Technical chart showing the share price performance of Fitbit, Inc. (FIT)

From a technical standpoint, Fitbit stock moved sharply lower to the middle of its price channel near the 50- and 200-day moving averages and pivot point at $5.75. The relative strength index (RSI) fell to neutral levels of 42.79, but the moving average convergence divergence (MACD) continues to trend lower. These indicators suggest that the market remains indecisive at the moment, but the intermediate-term trend is still slightly bearish.

Traders should watch for a rebound from the pivot point as well as 50- and 200-day moving average support levels. If that happens, traders could see a move toward R1 resistance at $6.70 over the coming sessions. If the stock breaks down from these levels, traders could see a move toward S1 support at $5.23 or lower trendline support at $5.00.

The author holds no position in the stock(s) mentioned except through passively managed index funds.

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