Fitbit Inc. shares dropped 16% on Monday after the maker of fitness trackers said its holiday sales were lower than expected and announced layoffs and other steps to cut costs.
Weeks after the announcements of two smartwatch-related acquisitions, Fitbit said it would cut about 110 of its employees — 6% of its workforce — as it reorganizes its business.
The San Francisco company said Monday that it expects fourth-quarter revenue to be between $572 million and $580 million, down from the previously announced guidance of $725 million to $750 million. It expects annual revenue growth for 2016 to be about 17%, down from its previous forecast of 25% to 26%.
Fitbit also lowered its earnings guidance: It now expects an adjusted loss of 51 cents to 56 cents per share for the fourth quarter; previously, it expected an adjusted profit of 14 cents to 18 cents per share.
"However, we are confident this performance is not reflective of the value of our brand, market-leading platform, and company's long-term potential," Chief Executive James Park said in a statement. He said the company has grown quickly in Europe, the Middle East and Africa and will focus on its fitness-tracker offerings and on expanding into smartwatches.
When smartwatch pioneer Pebble Technology decided to shut down in December, Fitbit said it would buy Pebble's intellectual property and software and hire some of the Redwood City, Calif., company's "key personnel."
This month, European smartwatch maker Vector Watch announced that its software platform and workers were becoming part of Fitbit.
Fitbit spokeswoman Paula Conhain said Monday that as part of the Vector Watch acquisition, Fitbit got most of Vector Watch's engineering team and "is establishing a cutting-edge development center in Romania," where the smartwatch company had a substantial presence.
She would not say how many Vector Watch or Pebble workers Fitbit hired, nor would she say whether the newly announced job cuts would be in California.
Fitbit is "hitting a wall in terms of the fitness tracker market," said Brad Erickson, an analyst with Pacific Crest Securities. "There may be a little bit of growth internationally, [but] that market's likely to hit saturation fairly imminently as well."
That's why the company is looking to expand into adjacent markets such as smartwatches, he said. Other possible opportunities for growth are selling its products through corporate wellness programs or finding a way to profit from data it has gathered about Fitbit users.
"If they can do that, I suppose it could get a little bit better," Erickson said of the company's prospects. "If not, it'll get worse."
Fitbit shares closed Monday at $6.06, down from $6.31 when markets opened. Its price has dropped more than 55% in the last three months.