Fitbit: Great Earnings + Bad Future Guidance = Stock Down 21%

Beginner stock investors often don't understand why a stock can go down after a company announces great earnings. It happens all the time and it has been happening a lot during this just completed earnings season.

For instance, Apple reported the best quarter in the HISTORY OF CAPITALISM last month and the stock went down! How can that be?

The reason is that investors care more about the future and less about the present and the past. A great example of this is Fitbit (FIT), the maker of wearable fitness devices and a new smartwatch called "Blaze". Fitbit has, by all accounts had a great Christmas quarter: its earnings beat analysts estimate by 45% and its revenue was up more than 92% from the year before. With numbers like that, you would think that the stock would jump up nicely in price the next day.

But in the end, investors only care about the future and on that front Fitbit might have a bit of a problem. Fitbit's guidance was substantially lower than those same analysts had projected and that alone caused the big 21% selloff. You see, who wants to buy into a company that might be slowing down or is projected to do worse than you had hoped? THAT is why the guidance numbers companies give during their earnings call are often more important than the actual numbers from the just completed quarter.

Fitbit is a good company with a some good products but the important question is whether fitness bands with limited functionality have staying power. The company makes a great fitness band but if you need more, is the Blaze enough to lure customers who might just decide to buy an Apple Watch or a Samsung Gear that can do a lot more? Maybe not and that is the concern of investors, especially since the Blaze looks like a cheap imitation of the Apple Watch.

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