Fitbit earnings beat expectations on strength of smartwatch sales

Fitbit is slowly righting its financial ship, courtesy of a successful push into the smartwatch category. The wearable company reported a profit (when adjusted for items such as stock-based compensation) thanks to growing sales in the new category.

Total revenues rose slightly to $393.6 million in the third quarter compared with the same period last year. The company did report a loss this quarter under generally accepted accounting principles (GAAP). But it was rosier than in previous quarters and showed that Fitbit is moving in the right direction. Net losses narrowed considerably to $2.1 million from $113.4 million this time last year. A good deal of the company’s revenue is being driven by the shift to smartwatches, which now comprise around half of Fitbit’s total revenue.

It’s a gamble that’s finally starting to pay off for the company. Fitbit launched its first smartwatch in August of last year. The Ionic was the result of three high-profile acquisitions: Pebble, Coin and Vector. It was an ambitious product that found the company embracing the one bright spot in an otherwise stagnant wearables market.

What felt like an extremely expensive Hail Mary for the company was ultimately bogged down by poor reviews (including one on this site), thanks to poor industrial design, among other issues. In an interview with TechCrunch earlier this year, CEO James Park admitted that the Ionic ultimately wasn’t a mainstream device. “It was a performance-oriented product,” Park said at the time. “That audience is much smaller than a mass appeal device.”

Its followup, the Versa, however, address many of the biggest complaints plaguing the Ionic, and has clearly proven a hit for Fitbit.

This is the first time the company has posted adjusted profitability since Q3 of 2016. Forty-nine percent of the revenue on the 3.5 million wearables it sold this quarter came courtesy of its smartwatches. Fitbit’s combined smartwatch sales currently put it in the No. 2 position in the U.S., behind only Apple. It seems the company’s gamble is beginning to pay off.