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Fitbit's Hopes Pinned to Smartwatch

Fitbit’s health is still up in the air. The San Francisco-based company, which laid off roughly 6% of its workforce earlier this year after lagging holiday sales, reported $299 million in first-quarter revenue—compared with $505 million for the year-earlier period—on Wednesday. Though results beat analyst expectations—investors reacted by sending the brand’s stock up 10% in late-day trading—the year remains one of transition, according to Chief Executive and President James Park, who is also a co-founder. He and analysts expect Fitbit’s sales to be buoyed by the company’s launch of a smartwatch later this year.

“We’re optimistic about the smartwatch category,” said Park on a conference call to discuss the earnings. “A lot of that optimism is driven by what we feel will be our own unique perspective.” He noted that as Fitbit looks to streamline its fitness tracker assortment, it will also try not to overwhelm the consumer when it launches the smartwatch portfolio.

In recent years, the 10-year-old Fitbit has been a fitness darling with the benefit of being first-to-market with a product coveted by consumers. After going public in 2015, the brand ran its first Super Bowl ad last year and was considered a shoo-in for holiday gift lists. But added competition from other players, combined with a lack of major product innovation—most new releases are simply playing musical chairs with different features, according to one analyst—have led to souring sales.

Many are hoping the coming smartwatch will revive the lagging brand. Park announced in January that the company had acquired the assets of Pebble, Vector Watch and Coin.

“For Fitbit to turn things around, the smartwatch will have to be successful when it launches in 2017,” said Nick McKay, an analyst at Wedbush Securities.

Of course, the fitness-tracking brand will still have to contend with competition in the $10 billion smartwatch market, chiefly from the likes of Apple, though other brands like Fossil have also entered the space. Just this week, Garmin began airing two new TV spots highlighting its own GPS smartwatches. Produced in-house, the 30-second spots will help further the Swiss brand’s global push by airing in the U.S., U.K., Germany and France.

Experts expect Fitbit’s marketing dollars will be heavily invested in the crucial smartwatch launch later this year. Like most retailers, Fitbit’s marketing spend is highest in the fourth quarter due to the holiday rush. The company, which uses its own internal marketing team but also works with San Francisco-based Argonaut, spent $84.9 million on measured media in the U.S. last year, up from $78.6 million in 2015, according to Kantar Media.

The company also said Wednesday that its recently launched social-feed portion of its app made headway with consumers in the quarter. Over 1 million people joined the networking function in its first month to connect with individualized walking and running groups, Park noted, adding that the feature helps “to tie the user base together.”

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