Why Did Fitbit Inc (FIT)’s Stock Plummet Despite a Blowout Q2 Results?

What appears to be driving down the shares of Fitbit Inc (NYSE:FIT) is a slimmer gross margin, which the firm reported to be 47% in the second quarter, down by four percentage points from the year-ago quarter. According to Bloomberg, the narrower gross margin may be indicative that Fitbit is spending more, selling its products at lower prices or utilizing more expensive components in making its devices. Another factor which may be weighing down the company’s share price is profit taking. In a discussion on CNBC, Steve Grasso said that one has to expect that with momentum trades such as the case with this stock, it is going to see large sales as a result of profit taking. He believes, however, that the model of the company will prove to be able to lift up margins in the long run.

As mentioned earlier, however, the second quarter numbers reported by the company are great numbers. “Our second-quarter results included our highest quarterly revenue in the eight-year history of Fitbit,” said James Park, Fitbit’s co-founder and CEO, after the company reported its performance. The company is projecting its third quarter revenue to be between $335 million and $365 million and earnings per share between $0.07 to $0.10. Gross margins are expected to be between 47% and 48% for the current quarter, another fact which may be driving the decline of the stock today.

Investors in Fitbit Inc (FIT) aside from Blue Ridge Capital includes the Foundry Group, Qualcomm Ventures, Sapphire Ventures, Softbank Capital, SoftTech VC, and True Ventures. Its products are sold in over 30,000 North American retail stores and more than 15,000 international retail stores.

Disclosure: None