Fitbit shares tumble: Does Wall Street have a problem with tech companies?

Yesterday the wearable technology maker Fitbit announced its first quarterly financial report since going public in June, beating analysts’ expectations with revenue more than tripling to $400 million. Yet despite skyrocketing sales, shares fell by more than 15% in after-hours trading.

The Q2 results pointed to a 253% rise in revenue compared to the same period in the previous year. Sales leapt 250% abroad from the US, 4.5 million devices were sold compared to 3.9 in the first quarter, and overall net income reached 21 cents per share – significantly more than FactSet analysts’ expectations of 9 cents per share.   

James Park, Fitbit co-founder and CEO, released a statement pointing to the fact that the company had tapped into a number of high-ranking corporate “wellness” programmes, and was continuing to improve and develop Fitbit’s services.

“Our second quarter results included our highest quarterly revenue in the eight-year history of Fitbit,” said Park. “In the quarter, we introduced new features and services, expanded brand awareness, increased global distribution and further penetrated the corporate wellness market.”

Fitbit Surge

With such strong figures, why did shares plummet? Some are pointing to the dip in gross margins, which fell to 47% compared to last year’s 52%. In Fitbit’s outlook for the full year of 2015, the company said the margin is expected to hover around this figure – largely due to greater amounts of spending on new products.

There’s also the fact that revenues for next quarter are predicted to be lower than the second quarter, with Fitbit putting the figure within the $335 million to $365 million range. It could be that investors have decided to cut and run with their profits.

Does Wall Street have a problem with tech companies?

In a larger sense, does this latest disparity between earnings and shares show a growing gulf between Silicon Valley and Wall Street? Last month Apple found itself in a similar position, with a record-breaking third quarterly report up 33% year on year undercut by a 7% fall in share prices during after-hours trading. Is Wall Street failing to properly value tech companies?

Whether it’s a result of investors unduly pocketing profits, or the volatile rise and fall of technology companies, upsets such as Fitbit’s recent share plummet hint at a larger clash between the two great centres of wealth in the US, and raise questions of whether 21st-century tech companies can continue to exist within traditional financial power structures.

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