Apple and Fitbit numbers show smartwatches turning into a winner-take-all market

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Fitbit plunged to a record low after hours on Wednesday because of disappointing smartwatch sales, a day after Apple exceeded expectations.

It's a tale of two companies told over the course of 24 hours. Apple is the icon of the consumer electronics business, having parlayed its dominance in smartphones into a market-leading position in watches by keeping people in its ecosystem. Fitbit is the challenger that innovated in fitness tracking and built a solid business before getting steamrolled by the industry superpower as it moved into more advanced smartwatches.

In its effort to stay competitive, Fitbit has been slashing prices, which resulted in a shrinking of its gross margin, or the profit left after subtracting costs of goods sold, to 34.5% from 39.8%., a lightweight smartwatch that it introduced earlier this year, for its disappointing numbers and lowered the midpoint of its revenue guidance for 2019 to $1.46 billion from $1.56 billion.

Park is trying to reduce his company's reliance on device sales and focus more on premium services, which will create a "longer lasting relationship with users while changing perception of products and services from a nice to have to need to have," the CEO said on Wednesday's earnings call.

 

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