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Fitbit Face-Plants After Giving Weak Q1 Guidance, User Numbers

Fitbit ( FIT ) stock fell off the treadmill Tuesday, a day after the maker of wearable fitness devices reported better-than-expected fourth-quarter results, but guided Wall Street much lower than expected for the current quarter. Fitbit shares were down 19%, near 13.40, in midday trading on the stock market today , and at least five investment banks downgraded their rating on the company. Fitbit stock hit its all-time low of 12.90 on Feb. 11, after the company went public in June at 20 a share and peaked in August near 52. Several analysts downgraded the stock or cut their price targets after the San Francisco-based company late Monday posted Q4 earnings and gave Q1 and full-year 2016 guidance. In Q4, Fitbit earned 35 cents a share, excluding items, on sales of $712 million. Non-GAAP earnings per share rose 67%, and sales jumped 92% on a year-over-year basis. Analysts polled by Thomson Reuters expected 25 cents ex items on sales of $648 million. But for the current quarter, Fitbit is targeting non-GAAP earnings per share of 1 cent on sales of $430 million, at the midpoint of its guidance range. Analysts were modeling 23 cents and $485 million. Fitbit’s New Products Out In March Fitbit Chief Financial Officer Bill Zerella said Q1 is a product transition quarter, with the launch of the Fitbit Blaze smart fitness watch and Alta fitness wristband in March, as well as the discontinuation of the Fitbit Charge. Fitbit expects to incur higher sales and marketing expenses because of the global product launches, plus additional manufacturing expenses to maximize production of the new products. Piper Jaffray analyst Erinn Murphy downgraded Fitbit stock to neutral from overweight and slashed her price target to 14 from 24. The outlook for Fitbit’s new products is cloudy, and the company faces tough year-over-year comparisons in the second half of the year, she said in a research report. Pacific Crest Securities analyst Brad Erickson downgraded Fitbit stock to sector weight from overweight. He cited the risk of hardware commoditization and poor user metrics as reasons for the change. “We see little likelihood of dispelling anytime soon the longer-term bear thesis of slowing growth, pricing pressure and longer-term commoditization,” he said in a report. Fitbit is looking like the next GoPro ( GPRO ), a hardware company facing market saturation, slowing growth and margin and earnings erosion, he said. Erickson is also concerned about active-user trends. Fitbit added 18 million new registered device users in 2015, of which 13 million, or 72%, were active users at year-end. Erickson says Fitbit stock has a fair value of 14. Cowen analyst John Kernan reiterated his market perform rating on Fitbit stock but axed his price target to 19 from 41. FBN Securities analyst Shebly Seyrafi maintained his outperform rating but cleaved his price target to 25 from 50. Sterne Agee CRT analyst Rob Cihra kept his neutral rating on Fitbit and price target of 18. To turn things around, Fitbit needs to show leverage in the corporate wellness market, improve customer retention, and come out with new products with breakthrough sensors. Despite shipping over 30 million devices in the past two years, Fitbit ended 2015 with 16.9 million active users. “This kind of ‘churn’ is likely just natural and systemic to the health/fitness market, as some Fitbits ending up in drawers seems comparable to well-intentioned health club memberships that don’t get used,” Cihra said in a report. Fitbit faces competition from makers of dedicated fitness products such as Garmin ( GRMN ) and Under Armour ( UA ), but also from makers of smartwatches with fitness features such as Apple ‘s ( AAPL ) Apple Watch.

High-Flying Tech Unicorns Will Get Wings Clipped

The private-market value of high-flying “unicorns” is certain to fall as the recent rout in stock markets and the continued weakness for initial public offerings take their toll. Lowered valuations reverberate in several ways, often leading to a slowdown in funding needed to keep companies afloat and also causing highly valued employees to head for the exits, several analysts said. Unicorns are privately held companies with valuations of $1 billion or more. CB Insights counts 152 of them, with a combined valuation of about $532 billion in the latest tally. But just like the value of a home for sale is not certain until it’s actually sold, the same is true of private companies. “The reset of unicorn valuations is not showing up just yet, but the conversations are happening,” said Anand Sanwal, CEO of CB Insights, which tracks IPO investing and unicorns. “We hear that companies are being advised to raise money sooner than later, as the capital available now may not be there in six months,” he said. The largest unicorn is Uber, the San Francisco-based ride-hailing company with a market valuation reported to be near $65 billion after completing a $2 billion funding round in early December. Following Uber is Chinese smartphone company Xiaomi, valued at $46 billion. Then comes accommodation-services provider Airbnb at $25.5 billion. Other high-profile unicorns include Snapchat, Spotify and Pinterest. There are various ways a company’s valuation is rated. A common method is tracking the market value of similar companies listed on stock exchanges. When their value falls, investors devalue their private counterparts. Valuations are based on the company’s latest funding round, which can vary in length from about one year to 18 months. The impact of the latest stock market crunch and weak IPO market is not yet baked in, but it’s coming. Last Friday, for example, Big Data analytics software maker Tableau Software ( DATA ) crashed nearly 50% after reporting fourth-quarter earnings that contained a weak Q1 outlook. Tableau’s report sank the stock of other Big Data companies, such as Splunk ( SPLK ), Qlik Technologies ( QLIK ) and Hortonworks ( HDP ). “The big drops we’ve experienced in the public markets will reach into the private markets, which is typically followed by a contraction in funding,” said Kathleen Smith, a principal at Renaissance Capital, which manages two IPO-focused ETFs. “The pure size of the private company valuations we’ve seen is unprecedented and not sustainable.” Lowered valuations have reportedly emerged in some areas. Jawbone, a provider of fitness tracking devices, last month said it had raised $165 million in funding at a reported valuation of $1.5 billion, or about half what it was valued at in 2014. The lowered valuation comes as fitness tracker Fitbit ( FIT ), which came public in June at a price of 20, closed Tuesday at 14.30. Also last month, Foursquare said it raised $45 million in a new round of venture funding. A report by the New York Times said Foursquare’s valuation was roughly half of the approximately $650 million that it was valued at in its last round in 2013, as it tries to bolster its location-data-based advertising businesses. As to how or when unicorn investors will get a return on investment, the IPO market is no place to look for that now. The IPO market in 2015, coming off two robust years, fell to a six-year low in the number of companies going public. There were no new issues in January, with just two in February thus far. “Pure and simple the IPO market is miserable,” said Scott Sweet, senior managing partner at research firm IPO Boutique. “IPO underwriters are in the most precarious situation we’ve seen in years. It’s the IPO buyers that are pricing these deals, not them.” One example is payment processing company Square ( SQ ), which debuted Nov. 19 at 9 a share, well below its expected range of 11 to 13. Square stock closed Tuesday at 8.62. “We need to see not only the market improve for all stocks, but especially for the few IPOs able to make it out now. If they don’t, it will close the IPO pipeline like a padlock,” said Sweet. The valuations of recent tech IPOs have been sharply cut. Security firm Rapid7 ( RPD ), which priced at 16 in July and peaked above 27 on its first trading day, closed Tuesday at 9.46. Hortonworks, which had a December 2014 IPO price of 16, closed at 7.43. Sharp declines have hit dating firm Match.com ( MTCH ) and data storage firm Pure Storage ( PSTG ). Action camera maker  GoPro ( GPRO ), which came public in June 2014 at 24, closed at 11.39 Tuesday. “Spotify, Snapchat, Pinterest, name after name — they would not IPO in this market,” said Sweet.

LinkedIn, Tableau Specter Haunts Apple Chips, Security Stocks

Tech stock declines piled on Monday, snowballing after badly received quarterly reports last week from the likes of  LinkedIn ( LNKD ) and Tableau ( DATA ), whose stocks sheared off.  Apple ( AAPL ) supplier NXP Semiconductors ( NXPI ), GoPro ( GPRO ) supplier Ambarella ( AMBA ) and cybersecurity bigwig Palo Alto Networks ( PANW ) all were down Monday following a brutal last week, among other decliners. IBD’s 26-company Computer Software-Security industry group was collectively down 6.9% in afternoon trading. The 41-company Electronics-Semiconductor Fabless industry group was down 2.7%. Ahead of the closing bell on the stock market today , Palo Alto stock was down 9%. Shares of CyberArk Software ( CYBR ), FireEye ( FEYE ) and Proofpoint ( PFPT ) were down about 9%, 9.5% and 10%, respectively. Shares of NXP and Ambarella were down 9.5% and 6.4%, respectively.  Apple suppliers Avago Technologies ( AVGO ) and Skyworks Solutions ( SWKS ) both fell more than 5% while Cirrus Logic ( CRUS ) and Qorvo ( QRVO ) were each down about 2%. Only a handful of stocks escaped the high-tech sell-off — a continuation of a Friday deluge that saw LinkedIn stock lose nearly half its value on Wall Street after the professional networker announced a low 2016 forecast. Compounding the pressure, analysts see Big Data analytics software maker Tableau losing market share to Amazon.com ( AMZN ) and Microsoft ( MSFT ). Tableau, too, guided to current-quarter sales and earnings that missed the consensus expectation. Security vendors lost 7.4% and fabless chip makers closed down 4% on Friday. NXP Halves Apple Exposure NXP’s plunge looks incongruous after the Apple chip supplier’s Q4 beat last week, but comes on a day when techs are broadly down, and amid an acquisition. In the long run, picking up Freescale is making NXP an automotive powerhouse  — sales in that segment bounded 45% year over year to $422 million. The Freescale deal also halves NXP’s Apple iPhone exposure as the smartphone giant deals with floundering demand. Apple chip suppliers Cirrus Logic, Qorvo, Qualcomm ( QCOM ) and InvenSense ( INVN ) recently issued March-quarter views that lagged the consensus . At least six analysts this month have rated NXP stock a buy, including two on Monday. A Jefferies analyst boosted his price target on NXP stock to 112 from 107. Ambarella stock sank as GoPro stock rocketed 10% as of Monday afternoon on its partnership with Microsoft. GoPro and Microsoft will partner on a patent-licensing agreement for file storage and other system technologies. “This agreement with GoPro shows the incredible breadth of technology sharing enabled through patent transactions,” Microsoft’s technology licensing president, Nick Psyhogeos, said in a press release. Last week, GoPro stock wiped out after missing Wall Street’s Q4 earnings views and guiding well below consensus Q1 expectations. Shares closed down nearly 9% on Feb. 4. But chip maker Ambarella missed the scrum and pulled ahead 5.1% that day. At least seven analysts cut their price targets on GoPro stock following the Q4 report. But at least three reiterated a buy rating, and another boosted his price target. Ambarella tried distancing itself from GoPro during its December quarter, instead highlighting the company’s expansion into drones and home security.