What's In Store For Fitbit (FIT) This Earnings Season?

Fitbit Inc. (NYSE:FIT) is set to report second-quarter 2016 results on Aug 2. Last quarter, the company posted a positive earnings surprise of 175.00%.

Let's see how things are shaping up for this announcement.

Factors to Consider

Fitbit posted decent first quarter results with both the top- and bottom line exceeding the respective Zacks Consensus Estimates.

In the quarter, product innovation, expansion of global distribution, the network effects of the Fitbit community and prudent investments were the main growth drivers.

The quarter witnessed Fitbit rolling out the much awaited Blaze and Alta. Blaze shipments totaled over 1 million units. Both the products received excellent reviews on Amazon (NASDAQ:AMZN) and solid reorders from retailers. Blaze and Alta contributed 47% to first-quarter revenues.

The company continued with its investments in research and development (R&D) to create more powerful electronics, miniaturized yet fashionable designs, spontaneous user interfaces and engaging social and community features. Investments in software have aided user retention over time. Headcount at its R&D division was 755 in the first quarter, up from 295 in the year-ago quarter and 624 in the prior quarter.

On the corporate wellness front, Fitbit’s partnerships continued to make inroads into employee benefit schemes. The company currently works with 10 of the top 100 benefits brokers in the U.S.

On the digital health front, Fitbit continued exploring partnership opportunities. The company’s popularity continues in the research community. Fitbit devices are used by major universities and research institutions and in more than 100 research projects.

The company announced its plan to enter into a strategic partnership with Alibaba (NYSE:BABA), the largest retailer in the world, to target millions of Chinese consumers through Alibaba’s TMall platform.

Going into the second quarter earnings season, Fitbit’s management expects revenues to be in the range of 565 million to 585 million, non-GAAP gross margin of approximately 48% and non-GAAP EPS to be in the range of 8 cents to 11 cents.

Earnings Whispers

Our proven model does not conclusively show that Fitbit will beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 4 cents. Hence, the difference is 0.00%.

Zacks Rank: Fitbit carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies which you may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

CDK Global, Inc (NASDAQ:CDK) , with an Earnings ESP of +4.26% and a Zacks Rank #1. The company is slated to report fourth-quarter fiscal 2016 earnings on Aug 3, 2016.

MeetMe, Inc. (NASDAQ:MEET) , with an Earnings ESP of +33.33% and a Zacks Rank #2. The company’s second-quarter 2016 earnings release date is Aug 1, 2016.

Analog Devices, Inc (NASDAQ:ADI) , with an Earnings ESP of +2.63% and a Zacks Rank #2. The company is set to report third-quarter fiscal 2016 earnings results on Aug 17, 2016.