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August 6, 2015

Has Apple’s iWatch boosted Fitbit’s Q2?

Wearable maker sees revenues grow three fold as margins fall due to extra spending on new devices.

By Joao Lima

The release of Apple’s iWatch last April could be behind Fitbit’s strong Q2 revenues, awakening consumers’ interest in wearables.

In its first results since it became a public company last June, Fitbit saw Q2 revenues triple to $400 million in Q2 2015, compared to $113 million in the same period last year and up from $319 million forecast by analysts.

Fitibit has reported gross margin losses with both Generally Accepted Accounting Principles (GAAP) and non-GAAP at 47%, respectively down from 51% and 52% in Q2 2014.

The fitness device manufacturer said margins were down due to investments on new products, with the company’s outlook for the rest of 2015 not expecting improvements in this area.

The company’s GAAP net income for Q2 2015 was $17.6 million, up from $14.7 million in Q2 2014. Non-GAAP net income was $51.3 million compared to $18.3 million in the same period last year.

Ben Wood, Chief of Research at CCS Insight, told CBR: "We have seen a gradual increase in demand for wearables and there is no doubt that the launch of the Apple Watch raised awareness across the board. Fitbit has been able to take advantage of that.

"The cash injection from the IPO has undoubtedly helped Fitbit accelerate its growth allowing it to invest more in marketing, distribution and product development. This has come at a time when its main rival, Jawbone, dropped the ball with the delayed launch of its new product range."

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Fitbit said it has sold 4.5 million connected health and fitness devices in the second quarter of 2015, compared to 1.7 million sold in Q2 2014.

International revenue increased 250% yoy for Q2 2015, driven by EMEA and APAC yoy revenue growth of 301% and 292%, respectively, for this year’s Q2.

James Park, Fitbit CEO, said: "Our second quarter results included our highest quarterly revenue in the eight-year history of Fitbit.

"In the quarter, we introduced new features and services, expanded brand awareness, increased global distribution and further penetrated the corporate wellness market. We remain focused on continuing to deliver innovative products and services that empower people around the world to reach their health and fitness goals."

The wearables’ market is set to grow in the future with different speed adoption rates between fitness bands and smartwatches.

Wood said: "We believe fitness bands are easier for consumers to understand as they have a clear purpose around fitness and well-being. Fitbit is doing a good job in this area and a key element of its success has been expanding its product range to add more capable products with features such as heart rate monitoring that consumers can upgrade to. They have essentially provided a journey for their users."

The Chief of Research added that smartwatches are more challenging, "they still feel like a solution looking for a problem".

Wood said: "It is still early days for wearables and consumers are still trying to find a place for them in their lives, but you can be sure that this Christmas is going to see bumper sales as they make a great gifting product."

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