Fitbit cuts 6% of workforce, announces smartwatch expansion
Fitness wearables experts Fitbit have announced layoffs after a disappointing fourth quarter result for 2016. In the same preliminary results statement, the San Francisco-based company also said they intend to expand their smartwatch line-up. This decision comes off the back of Fitbit’s recent acquisitions of smartwatch start-ups Pebble (US) and Vector Watch SRL (Romania). Details and launch date for the new product are not yet available.
The company said they intend to make “cost reductions to improve efficiencies and strengthen performance”. The end result is that 110 employees will be laid off, which is approximately 6 per cent of the company’s global workforce. The lay-offs will result in a $4 million saving in the first quarter of 2017.
Fitbit CEO explains smartwatch expansion plans
Fitbit CEO James Park commented on the smartwatch expansion:
“We believe the evolving wearables market continues to present growth opportunities for us that we will capitalize on by investing in our core product offerings, while expanding into the smartwatch category to diversify revenue and capture share of the over $10 billion global smartwatch market.
“We believe we are uniquely positioned to succeed in delivering what consumers are looking for in a smartwatch: stylish, well-designed devices that combine the right general purpose functionality with a focus on health and fitness.”
Park also mentioned the acquisition of Coin in May 2016, a company which developed wearable payment technology, was also important for their upcoming smartwatch release. Fitbit had previously said the Coin acquisition came too late for integration in any of their 2016 releases, so the company are finally seeing the fruit bear from that.
Greater focus on software offerings by Fitbit
Fitbit have also recently focused on expanding their software offerings. Recent moves in this area include bringing in new social features, updating their Fitstar app and enhancing software compatibility with third-party devices. Park highlighted this shift at CES last month:
“We are trying to shift the perception of Fitbit from being just a hardware company to a connected device company where software is equally, if not more so, important.”
Global smartwatch sales drop significantly in Q3 2016
It seems a little curious that Fitbit are expanding into smartwatches, given that smartwatch sales declined 51.6 per cent in quarter three 2016. Some analysts have suggested the dip may be reversed by the September 2016 launch of the Apple Watch 2, although it’s too early to say either way. It’s likely that Fitbit planned the expansion into smartwatches before the sales decline became apparent, so perhaps they’re in too deep to back out now.
Fitbit’s fourth quarter revenue results were $572 – $580 million, which is significantly below the predicted results of $725 million. For the year of 2016, Fitbit expects annual revenue growth to hit 17 per cent, which is below the previous forecast growth of 25% to 26%. The company’s stock dropped 16 per cent to $6.05 a share at the close of business on Monday.
It’s not all bad news though, as Fitbit’s revenue grew by 58 per cent for the fourth quarter in across Europe, the Middle East and Africa. The company did not release figures for growth in the Chinese market, which is perhaps the largest potential growth area for Fitbit. Expanding the userbase in China won’t be easy due to the proliferation of local budget competitors.