The top line was hurt by a drop in pricing despite a rise in devices sold. Revenues declined in the US and across all its international regions, barring Asia-Pacific.
Around 6 million devices were sold during the quarter, up by 7% from last year. The average selling price decreased by 19% to $81 per device, due to the introduction of more accessible and affordable devices and higher promotions.
Smartwatch revenue increased by 45% year-over-year at retail due to the strong demand for Versa 2. The community of active users increased to nearly 30 million, and Fitbit Health Solutions grew 17%, underscoring the strength of the Fitbit brand.
For the fourth quarter, gross margin declined to 24.3% from 38% last year. This was due to the device mix shift towards smartwatches, higher promotions, tariffs, and the absence of a benefit from the release of warranty accruals associated with certain products in 2018.
Looking ahead, the company expects to grow its higher-margin revenue streams in 2020. The company launched its new Premium membership, which is seen improving retention and engagement due to its actionable guidance and coaching from Fitbit’s personalized experience.
During this quarter, the company announced its entry into a Merger Agreement with Google LLC. Upon the close of the all-cash transaction, Fitbit stockholders will receive $7.35 per share in cash, valuing the company at a fully diluted equity value of about $2.1 billion. Fitbit and Google are expected to secure the necessary regulatory approvals and close the transaction in 2020.
Due to the pending acquisition by Google, Fitbit does not plan to host an earnings conference call nor provide forward-looking guidance.